If you have an idea for a startup company, that’s great, but your idea is only worth as much as your wallet will stretch, and starting a business, unfortunately, requires a pretty hefty investment. I say that not to discourage anyone from starting their own business, but simply to underscore the importance of monetizing your idea. Your idea will need to be both profitable and profited, but how do you make money if you don’t have enough money to start with? That’s the conundrum, but luckily there’s a solution in the form of various types of outside funding. There are many avenues of funding for startups, but not all of them will be right for your business idea. So consider your options and carefully analyze your business objectives to determine the right fit for you. Here are your main options:
- Venture capital investors
Venture capital funding has the potential to grow your company exponentially and bring you massive returns because venture capitalists are professional investors who apply their ample resources specifically to startups. However, you should only solicit a venture capitalist if you have a proven business model in place, as in the potential to bring in at least a million dollars. Another potential downside of venture capital funding is that you will need to be willing to turn some of your control over to the venture capitalist, as they will occupy a share of your business.
2. Angel investor groups
Angel investor groups are similar to venture capitals, yet they are aptly named as they invest their personal finances into businesses where they see potential, rather than using money from other people. Angel investors are usually wealthy individuals who have money to spare and believe they have something to gain in investing in a startup (think the hit tv show Shark Tank). The downside with angel investors is that they often expect something in return, that something being a large share of your company so that when you profit, so do they. Despite losing some of your earning power with angel investors, it allows you to retain control over how your business is run.
3. Bank loans
If you have excellent credit history, you may be able to approach your bank for a line of credit. Commercial banks are usually skeptical of loaning money to startups unless you have existing assets to use as collateral, however. Another option would be to get a small loan through the Small Business Association (SAB).
If you have a viable business model, you could try appealing to the masses with crowdfunding. This is one of the newest sources of revenue for startups, whereby entrepreneurs promote their business plans through social media via a site like Kickstarter or GoFundMe, and people pledge donations for something in return (such as a product or reward) once the business takes off.
Bootstrapping is simply funding your startup yourself, through your own savings. It may seem difficult, if not impossible, to save up enough money to start your own business, but the costs of starting a business are actually at an all-time low and more than 90 percent of startups are self-funded. If you start saving strategically, it may be simpler than you think to fund your startup yourself, and the upside is that you won’t have to sacrifice any profits or control.
If your startup is in need of resources other than just capital, an incubator organization may be the right choice. These organizations are typically universities or large companies that are able to provide resources such as office space, marketing, and consulting to get your business started in exchange for equity. Some are even able to offer seed funding.
7. Family and friends
Don’t forget about your family and friends as a valuable resource. While being in debt to someone close to you may not be the most attractive scenario, but funding from family and friends can be a great starting point, as it demonstrates to investors that these people trust in your business idea.
8. Small business grant
Don’t rule out grants as a source of funding, as opposed to loans (which you have to pay back). Conduct a search of federal grants through a site like Grants.gov; it may take some time to find a grant program that supports your cause, but it won’t cost you anything.