Capital is an integral part of successfully running any startup. You can have a great idea or a great product but if there is no money to scale it or promote it, your startup will more likely fail. In this article, we explore the various ways how to source for funding as a startup;
Write and distribute out a business plan
By giving out your business plan, you selling and convincing the potential investors on the business opportunity you have which they can invest in. An investor-winning Business Plan must clearly explain why your startup business is a perfect place for them to invest in. Furthermore, the business plan should be able to explain to the potential investor how you going to spend their money if given. Having justification for whatever you put in your business plan is essential for winning over someone reading it. Random ideas get random results. Well-thought-out, justified ideas get serious consideration. Investors always want to invest in people or businesses which understand what they’re doing. No investor would want to invest in some imaginative idea with no business viability. startups looking for funding need to understand that, getting an investor isn’t just an easy to move journey. It takes real actions on the ground which could entice potential players to bring in the necessary capital you need.
Propose a mutually rewarding partnership
The other way of getting capital for a startup could be through building a mutually beneficial partnership with other people or entitles, that could have the potential to offer funding for your business. This partnership could be possible by sending out a well-written business proposal to the potential target partner. In most cases it is important to first analyze if the target partner could have interest in what you would want to propose to them. People embrace partnerships if they could offer actual benefits to them. This is why the business proposal must be clearly well-written to include the equally rewarding benefits and opportunities.
Reach out to family and friends
This is could be one of the most reliable way of obtaining the necessary capital for your startup business. Friends and family remain the best shot that many entrepreneurs have to raise outside money to launch a business. In 2010, the Global Entrepreneurship Monitor, a research consortium which includes Babson College conducted a poll survey in which 5% of the polled U.S. adults said they had given funding to someone starting a business in the past three years. Of those respondents, 32% said the funding went to a friend or neighbour, 26% to a close family member, 11% to some other relative and 8% to a work colleague. These findings reveal how family and friends can be a reliable source of funding for your business. However, it is important to note that seeking funding from family or friends requires a careful and strategic thought through, as any miscalculation could endanger the special relationship you have with them.
Pitch to Angel Investors and Venture capitalists
Almost over 90% of startups have had a financial blessing from Angel investors or venture capitalists. For example, in 2004 Peter Thiel of the Clarium Capital invested $500,000; becoming the first investor of now the biggest social media platform in the world. By 2005, both Thiel and Accel Partners had invested $12.7 million into Facebook, giving the platform a staggering $87.5 million valuation. With this unprecedented funding, Facebook did not remain the same as more investors kept joining the bandwagon to sink in huge sums of money.
It is also important to note that, getting venture capitalists to fund your business takes more than just an idea. Investors want to put their money into an individual with a compelling story behind the business. A strong story helps Venture capitalists to feel engaged with your business idea and execution. This includes knowing how your story will end (think potential exit strategies). Furthermore, venture capital is not necessarily for all entrepreneurs. It is also important to know that venture capitalists are mostly looking for technology-driven businesses and companies with high-growth potential in sectors such as information technology, communications and biotechnology.
Another impact fact to keep in mind is that; Venture capitalists take an equity position in the company to help it carry out a promising but higher risk project. This involves giving up some ownership or equity in your business to an external party. Venture capitalists also expect a healthy return on their investment, often generated when the business starts selling shares to the public. Be sure to look for investors who bring relevant experience and knowledge to your business.
Apply for grants
Grant-seeking is one way to get your startup funded. Whereas incubators, accelerators, loan programs, angel investors and venture capitalists, require that you give up at least some equity in your business in exchange for some financial support, grants don’t!
There are various grant opportunities available for startups. What matters is how compelling is your story to be able to win the money. Currently, Startups that deal with issues that affect communities are likely to be given quick attention and get funded easily. Also, startups dealing in artificial intelligence solutions are also likely to be funded so easily. To be able to win a grant, the formula is always to have a compelling story which you’re able to sell so precisely.
In conclusion, finding funding for your startup business is one of the most complicated things to do. In fact, according to CBI insights findings, over 29% of startups fail because of failing to raise the necessary capital they need to scale their innovation or product. For example, in 2013, Flud; an online social news reader startup shutdown, after failing to raise additional funding to scale. Despite multiple approaches and incarnations in pursuit of the ever-elusive product market fit and monetization, Flud eventually ran out of money and closed down.
In this article, we didn’t talk about loan acquisition as another way to secure funding for a startup. This is because obtaining a loan to start an unproven business is indeed a bad idea. A loan debt is a cash drain, which makes it harder for a startup business to succeed. It is typically secured by a personal guarantee and collateral on the part of the entrepreneur who takes the loan, which greatly increases the risk.