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Startup development

How to Finance a Startup

by Daniel Austin, from Moneypex, on Dec 12
Finding a venture capitalist who is willing to trust your business idea is a great way to raise funds. Having a refined business model that is ready scale will give is what you need to attract a venture capitalist.
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You have got the right idea. You know the right people. You have the right mindset. One thing stands in the way of taking your entrepreneurial spirit off the ground and into the air: Funding.

Funding separates business aspirations confined to dreams than those that come to life. We are not going to lie—making your business dream a reality is not easy. The truth is the number of ideas floating around far exceed the available sources of funding. Everybody thinks they have it. But a very few people are willing to believe them enough to fund their idea.

However, this should not discourage you. It should only motivate you because if you have enough faith in your idea and vision, you have the following options to get your business going.

 

  1. Crowdfunding

Propelled by the tech revolution, crowdfunding is a booming source of obtaining finance for your business. What you need is a captivating pitch that shall draw the attention of the investors. After drawing attention, you need to make a sound and logical case for the predicted growth of your business. This shall provide you with access to the cash-rich community, helping you start your business.

The benefit of a successful crowdfunding is that you will have nothing to pay back without giving up an ounce of control over the operational end. Plus, through getting the word out, you will create familiarity about your business. This will give you an early taste of advertisement.

 

2. Friends and Family

Friends and family are the primary source of funds for early-stage startups. The truth is professional investors would expect you to have garnered some resources from this end. If people close to you aren’t willing to put faith in your idea, why would external investors?

The key is to approach members within your network as if you would approach professional investors. Expecting your friends and family to support you simply because of your relation would undermine the core value of your start-up. With a professional approach, you would not only be far more persuasive but also be true to why you believe your idea deserves attention.

 

 

  1. Venture Capitalist

Finding a venture capitalist who is willing to trust your business idea is a great way to raise funds. Having a refined business model that is ready scale will give is what you need to attract a venture capitalist. However, there are a few things to keep in mind if you intend to access this option. Most venture capitalists seek ideas that go big in the market. As a small scale start-up you probably aren’t planning a mega scale-up. Plus, venture capitalists generally seek to quickly recover their investment, turn a profit and move on the next start-up. You won’t get sustained support if you decide to pursue this option.

 

  1. The Classic Bank Loan

There are some specific banks giving out loans to small businesses. However, banks are extremely wary of your credit history. So, if you have a decent credit history or some assets you are willing to offer as collateral, and a comprehensive business plan estimating clear profit forecast, a bank loan will ignite the spark for your start-up.

The pros are going with this option is obtaining a large sum and retaining full control over the business. The cons are you will have to pay more than you borrow (interest), or else potentially end up in bankruptcy.

 

  1. Bootstrapping

Bootstrapping means using your personal funds to start your business. You can immediately grasp the major benefit of this option: Not being reliant on anyone else. If your business is dependent upon other people who aren’t involved in the internal dynamics, you face a degree of vulnerability. Bootstrapping strips away that source of vulnerability.  You can track all your expense and profits with a free accounting software Moneypex.

If you could bootstrap, why would you even look for sources in the first place? That is a good question. But for something like bootstrapping, you will have to revamp your funding strategy. Since every penny you earn or spend can potentially go towards your business, you need to conquer your financial handlings. The first step is getting a free credit card report so that you can assess your financial standing. Next, you can figure out the interest rate you are eligible to get loans which will give you affordable credit.

Apart from taking credit, you can use personal savings, sell off assets, or keep your day-job going.
Like all other options there are drawbacks with bootstrapping: It takes away attention from the business itself and if you fail, you are left in a muddle of debt.

 

  1. Incubators and Accelerators

Incubation centres have changed the start-up game. They have taken the charm of start-ups from the reach of a few daring individuals to the general public, creating a collective spirit of entrepreneurial pursuit.

Incubators are buzzing communal spaces where you feel part of a community striving to innovate, which also allows you to collaborate or use the support of people around you.

However, top incubation centres are selective. But once you get in, your business idea can only go forward, for you are forced to make progress. Plus, you get to learn from a wide array of seminars, workshops, and mentorship opportunities conducted at the centre.

 

  1. Small Business Grants

You can find dozens of grants offered by national and state governments aiming to stimulate the economy and expanding the employment network in the country.

The benefits of grants are fixed interest rates, cheaper manufacturing equipment and funding staff training.

However, accessing this source means you will have to compete ferociously with other start-ups. There are only so many grants after all.

Conclusion

Having listed the prominent sources of funding your start-up, it must be noted they aren’t mutually exclusive. You can take out a bank loan and also bootstrap. But whatever option you choose you must consider your individual preference. Your subjective preference based on your current resources would make one option more suitable than the other. Whatever you choose, make sure you can comfortably ensure that you will stick with it.

Note: Full or partial copy of the publication is allowed only with the direct active link to InnMind platform.

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