August 9, 2020

6 options for financing your startup

6 options for financing your startup

Fundraising is one ofthe biggest problems an entrepreneur may face. Inventors and developers often do not realize that there are many ways to raise funds. Therefore, in the presence of a worthy basic idea, knowledge of all available sources of start-up capital will help you choose the right approach.

Self-financing, family and friends

Before looking for external financing, founders with their own funds often found a company with personal money. Even a modest amount can launch a project and take it to the prototype stage. If there are several co-founders, each of them can contribute to increase working capital.

In addition to the organizers, the most obvious peoplewhom they ask for money are relatives and friends. However, in this case, proceed with caution. Since money is a delicate subject, this can put your relationship at risk.

Accelerators and incubators

There are tens of thousands of startup accelerators and incubators around the world.

Incubators provide common office space and other services, offering mentors, investors, and even potential customers in exchange for a small share of the capital.

Accelerators offer training programs for thosesame conditions of cooperation. Most programs will help improve the basic idea and develop a business plan. At the end of the training, accelerators help attract investors, which significantly increases the chances of getting start-up capital.

Although not common, some incubators and accelerators themselves also provide small initial investments to companies at an early stage.

Now many technical universities are launching such programs to help their students and recent graduates.

Business Angels and Venture Investors

Business angels are wealthy people whoinvest in startups in exchange for a share of capital. They are often the first source of external financing. However, in this case, it will be necessary to prepare a competent business plan and answer possible questions about various aspects of the business:

  • about the project team;
  • commercial potential;
  • financial performance.

Business angels can be found through the Internet or acquaintances, but most likely they will be located near the centers of entrepreneurial activity and innovation.

Unlike business angels, venture investorsearly stage are employees of companies that invest in a fund funded by other wealthy people or organizations. They often focus on specific areas or industries. Another feature is that their decisions usually require the approval of other partners.

6 options for financing your startup

Crowdfunding

This fundraising method has become viable.an option for startups, and now there are many sites that collect small contributions, forming a large fund. They do not require equity participation, but charge a small percentage of the total funding received. Crowdfunding requires the founder to gather compelling marketing information to attract donations.

Government funding

In recent years, support for entrepreneurs has becomea priority in many countries as they create jobs and stimulate economic development. Many governments have launched seed funding programs to help engineers and scientists commercialize their discoveries and developments.

The government does not require part of the capital in return,but focuses on advanced scientific and technical projects. Funding, often in the form of grants, is divided into phases based on a conceptual review.

If you receive one of the grants, most likely, the additional project will attract subsequent attention and assistance from investors.

Large employing companies

Some engineers run a startup whenthe support of your employer, which is usually a large company. Some companies are ready to assist employees in licensing intellectual property to create an enterprise or develop a new market in exchange for a share of capital. Some even provide seed funding.

Money is the fuel of business

Fundraising is the most important project onthe initial stage of development of the company, not counting the development of the product itself. It takes a lot of time to contact potential investors, regularly find new contacts, attending startup events and talking with referrals.

However, it is impossible to overestimate the role of fundraising for a successful enterprise. After all, a startup’s dream will not last long without money to finance it.

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