Startup funding keeps many would-be businesses from ever reaching their full potential. For many, the company is never able to go from ideation to fruition because of a lack of funds.
If you’re a startup, there are a few ways to secure funding for your venture with varying degrees of success, depending on the industry and the product/service you plan to sell.
A few of the most common ways to secure funding for your startup are:
Self-funded Options
Capital often comes from those closest to you – even yourself. If you have the means, you can start your own business with the money you have in the bank. Anywhere from 75% to 80% of small business owners use their own assets as business startup funding.
Friends and Family Funding
Amazon was funded by a $250,000 investment from Jeff Bezos’ parents. If you have friends and family who would like to invest in your venture, you can offer them equity in the company or repayment terms.
However, due to a large number of companies that will fail, you need to be upfront and honest with your friends and family that:
- Your company may fail
- They may never receive their money back
You have to be honest with these investors because you can lose your relationship with them if you’re never able to repay them.
Business Loans
If you have a good idea for a business, you can often get it funded by a bank. You will need to meet strict requirements and will need:
- Business plan
- Some of your own assets in the business
Due to a large number of potential owners seeking loans, you may or may not be able to secure funding.
Government Loans and Grants
Depending on the industry that you’re in, you may be able to seek government loans and grants. You’ll need to do your due diligence to learn which programs may be available in your area.
Accelerators
Business accelerators may be an option for you. These programs often require you to have a team and product in place. However, if approved when applying, they will help you scale your operations and offer funding in return.
What do the investors receive?
Equity. You’ll need to provide an agreed-upon percentage of equity in the business in return for the guidance and funding offered through the accelerator.
Investor Options
Investors are another option for funding a startup. In exchange for their investment in your start-up, they will expect a return within a certain period of time. Additionally, investors will expect you to use their funding smartly.
Dealing with investors and their expectations can be stressful. There will be tremendous pressure to grow and expand. However, if your goal is to build a large business, investors will typically be the best option.
There are many types of investors:
- Personal Investors, which typically come in the form of family and friends.
- Venture Capitalists, which seek large returns through their business investments.
- Angel Investors, which generally give investments in small amounts. They may only expect a small return on their investment, and don’t typically require part-ownership of the company.
Generally, venture capitalists are looking to invest in businesses that have a track record and demonstrable value.
If you’re looking to fund your startup, these sources are a great place to start. Self-funded options and loans are the most common sources of funding for startups that are just getting off the ground.