Getting money for your idea has never been easier!
Investors and Banks have figured out that these fresh ideas and concepts are what drives the economy and that potential return rates on these investments can supersede almost anything they could’ve earned otherwise.
But there is more to it than your traditional investors.
Nowadays, even individuals have started to support quality products. Crowdfunding is the latest buzzword that has propelled so many successful enterprises.
So, what are the best ways to fund your company? How can you get the money you need?
Here are 11 great ways to do startup funding. Let’s check them out!
1) Self-funding or Bootstrapping
Self-funding is the oldest and simplest ways to start a company. Truth be told, it isn’t something that will work for all the projects: just imagine self-funding an organization such as Google. However, it can be a good solution during the initial development stages. It can work especially well for services as costs are not as high as with some other types of projects.
The good thing about bootstrapping is that all the profits go back into your pocket. You don’t owe anyone anything. Furthermore, it is great as you don’t have to go through the same tedious process of getting additional funds when the current run dry. Still, keep in mind that your options here are severely limited.
2) Funding through Family and Friends
Of course, the second most common way of funding a company is to ask your friends or family members for a loan. The tricky thing about this is that you shouldn’t simply ask them for some money. Instead, it is much better if you have a contract as well. These situations often turn sour especially if a person miscalculates the profitability of a business. If and when such a thing occurs, you will have to deal with family issues or friends turning their back on you.
When creating a contract of this type, it is very important to either formulate it as a loan or to give friends or family members a share percentage or equity of your company. This way, everyone will be happy with this agreement. In the end, you have to show appreciation by giving them something in return because they would be trusting you with their money.
3) Partnerships
There are lots of different reasons why you should go with a partnership. First and foremost, it reduces the risks of the business. When we say partnership, we usually talk about situations where you team up with another company. This is especially true when it comes to licensing deals.
Here, you can offer a company to manufacture your product while getting part of the profit. That way, you won’t have to invest so much money setting up your own manufacturing plant but instead, you can use their own facility.
Needless to say, this will not only reduce your production costs but also manufacturing costs as your item will not go under a reputable brand name. Keep in mind that partnerships can come in various forms but when talking about initial investments, this is what most experts refer to.
4) Various types of loans
Over time, both the United States and other global governments have increased their efforts in providing sustainable loans that will not hurt the economy in the long run or create a bubble effect. In the case of the USA, this can be seen through the implementation of a small business loan program that is spearheaded by Small Business Administration.
Such loans are meant to help companies get funds without having to use their own properties as collaterals. In fact, this is one of the major issues with loans. Most owners need a guarantee in the form of a house or a property which is often a deal-breaker and as such, it is something that can hinder the economy. Otherwise, you can put assets on the line. Unfortunately, small startups usually don’t have assets that can be used as collateral.
5) Crowdfunding
Crowdfunding is a very typical way of getting money. It is increasingly popular among young people and at the same time, it is a good way to analyze your product before it even hits the shelves. Unfortunately, due to the fact this is a relatively new concept, there are lots of different problems and something could even get your company into legal issues. So, if you decide to go this route, it is very important to learn more about crowdfunding in advance.
This is probably one of the best ways to fund your company as it doesn’t require you to give much in return. For example, when you set up a page on Kickstarter or a similar platform, you can disclose your goals in advance. The more person gives, the more he or she will get in return. Sometimes, these can be extra collectibles or items that cannot be bought otherwise.
This is precisely why crowdfunding is great for the gaming industry as well as other types of publishing businesses. One of the newest crowdfunding concepts is equity crowdfunding. With it, your startup can seek out a large number of small investors. This is opposite to concepts such as venture capital funds where one fund can solve all your issues. Of course, when you opt for equity crowdfunding, you need to provide these small investors with something in return (for example, an equity percentage of your company).
6) Minor business grants
As previously mentioned, governments and certain organizations can provide a great boost to young startups. They can give them one-time funding without any collateral, interest or equity. These grants can vary significantly from country to country and usually have to do with its economic policies.
If we are talking about grants that the US government provides, these are grants for socially-oriented companies. So, if you’re doing business within education, medicine, or alternative energy field, you should definitely ask around about these grants. Keep in mind that while these are one-way grants and there is no financial obligation of any kind, however, there might be some other rules or limitations in place that you need to adhere to.
7) Venture Capital Funding
Although venture capital funding sounds like a new concept, it is a relatively old one. Most of these companies are focused on firms that have something new to offer to the market. They love investing in IT, healthcare, semiconductors, and so on.
Venture capital firms provide funding to these enterprises and in return, they get a sizable ownership share. Depending on the venture capital company, they will exercise smaller or bigger control over the company they’re funding. Some companies will simply invest and after that, they will let the startup do as they want. Others will provide additional training and assistance to startup employees and ownership. It all depends.
You have to bear in mind that venture capital companies usually focus on startups which need at least 1 million dollars to begin their operations. Because of that, there is no point in seeking them out unless you need a sizable investment from the get-go.
8) Angel investors
An angel investor is a type of venture capital investment. However, in this particular case, instead of a company that gets its funds from institutional investors, we are talking about single individuals (or small teams) who have large assets at their disposal.
So what are the benefits and the drawbacks here? Unlike venture capital firms, angel investors ask for a much larger piece of the pie. On the other hand, these individuals are usually very successful investors with sizable financial experience. As such, they are willing to provide much better marketing support and they will often help with training with an emphasis on finances.
Unfortunately, this also means they will have much more impact on the business and also, much more control. These investments range from 25,000 to 250,000 dollars. The amount of money you can get is much lower compared to that from venture capital funds. This makes angel investors ideal for small or medium businesses that don’t require too much scaling.
Perhaps the best thing about angel investors is that this type of relationship is informal and because of that, there is much more flexibility and negotiating when making a contract.
9) Accelerators and Incubators
Accelerators and Incubators are a pretty interesting concept. They are mostly focused on training and networking instead of providing funds. However, if needed, they will also fund an enterprise but in that case, they will expect an ownership stake in return.
These organizations are really unique but they don’t work for all types of companies. Instead, they are ideal for businesses that heavily depend on networking and communication. They can also be good for people who have amazing business ideas but not enough business experience. An individual can learn a lot in this environment before starting an enterprise of their own.
10) Barter
This is a somewhat obsolete concept but still there are people and companies that are willing to go with it. Instead of getting cash, some investors prefer trading. Here, we don’t necessarily talk about money but instead, exchange of services, resources, and products.
Simply put, a company will want one of your products or services and in return, they might give you resources or something else that will help your production process. Although this isn’t an investment per se, it is still a way of stretching your resources and “earning”. Such deals might not seem major but they can make a difference between survival and shut down for small startups.
11) Working with a future customer
Here is an interesting proposal – If there is a major customer who needs your product and can use it for their own chain, they might be willing to provide money that will propel your company forward.
What’s the catch? They might want a part of your future profits, they might force you to change the product specification to meet their needs or to compel you to make some other compromise that will benefit their future goals. This is perhaps the safest bet but it also entails that you will lose the majority of your control. You might even lose a good part of your profits. So think carefully before deciding to go with this plan.
Last Thoughts –
As you can see, funding your company can be a tricky task.
It’s not a “one size fits all” model. You will have to find just the right investment vessel and partner that will get you to that next level. Also, you should try and avoid giving too much in return!
During the negotiation, other companies will try to get as much as possible in return. But, if you believe in your idea and think that you can pull it off without too much outside involvement, perhaps you should find a course of action that won’t leave you empty-handed.
Hopefully, this article will help you recognize some differences between investment types and as such, it will help you make the right decision.
