A recent study shows that more than 94 percent of businesses fail in their first year. The most common reason for this is the lack of funding. For your startup to grow into a revenue-generating business, it requires fuel named capital.
Here are some funding options for your business startup:
Bootstrapping
Self-funding is a very effective way of getting your business off the ground, especially if you can afford it. First-time businesspersons usually have a hard time finding capital without showing some traction. You can ask your family to contribute to your funds or use your own savings.
If your business needs a lot of money from the start, this might not be a good option.
Crowdfunding
Crowdfunding is the easiest way to fund your startup and it has gained a lot of popularity in the recent past. It is like asking for a contribution or loan from more than one person at a single time. You need to put up a detailed description of your startup on a crowdfunding platform of your choice and mention your goals as well as how much funding you need.
Anyone who wants to fund your business makes a pledge with a promise of giving a donation or pre-buying a product. Crowdfunding is a great option for financing because it also captures people’s attention, helping in marketing.
It also cuts out brokers and professional investors by putting your funding needs in the hands of ordinary people.
Angel investment
Angel investors are people with extra cash and an interest for investing in startups. They work in networks to screen any proposals before they invest. Aside from giving capital, they can also offer mentoring advice.
Angel investors have helped in the startup of many big companies, including Yahoo and Google. They usually expect up to 30 percent equity and they take huge risks expecting higher returns.
Venture capitalists
Venture capitalists are professionally managed funders who invest in startups that have a huge potential. They often invest against equity and make their exit when there is an acquisition or IPO. A venture capital investment is also ideal for small businesses that are not startups and are already generating revenue.
However, venture capitalists have a few downsides, including a short leash when it comes to company loyalty. They also seek to recover their investments between three to five years. If your product takes longer than that to get into the market, a venture capitalist might lose interest in your business.
Business incubators and accelerators
If your business is in its early stages, you should consider business incubator and accelerator programs. They are found in almost any city and assist hundreds of businesses annually. Although both terms are used interchangeably, there are some fundamental differences between them.
Incubators nurture a business and help it to walk while accelerators enable it to take giant leaps. The programs, which usually run for about 4 to 8 months require commitment from you as the business owner.
On these platforms, you will be able to make connections with investors, mentors, as well as other startups.
If you want your startup to grow very fast, you need outside capital sources. If you self-fund and remain without capital for a long time, you will not be able to take advantage of some opportunities in the market. As a smart business owner, you need to ask yourself how much capital you need.
