According to some recent studies, 20% of small businesses fail in the first year, while 30% of them fail in the second year of operation. And, one of the major causes for that is the lack of proper funding. Steady cash flow is what ensures your startup’s growth and competitiveness. This is why you securing funds for your startup on time should be your priority. However, with a plethora of startup funding options, how to know which ones can meet your business’ needs?
Here are a few tried and tested funding options for your young company.
1. Fund your Startup on Your Own
Bootstrapping refers to funding your business idea on your own. In addition to saving up or taking out a personal loan, bootstrapping also includes borrowing money from friends and family. This is definitely a simpler and less bureaucratic way to give your cash flow a boost.
Bootstrapping also keeps you in full control of your company and its budget. Most importantly, it tells your early investors how serious you are about your venture and that you truly believe in its bright faith, inspiring them to invest in it, as well.
Still, there are many disadvantages of funding your startup on your own. Even though bootstrapping is an effective way to get your company off the ground, there will probably be certain restrictions on your company’s growth. To scale your business as fast as you need to, you will probably need to turn to some external funding options later.
2. Harness the Power of Crowdfunding Platforms
If you have a truly unique business idea, then crowdfunding may be the right option for you. Now, there are multiple types of crowdfunding, like rewards-based or equity-based ones. The idea is simple- to choose a popular crowdfunding platform like Kickstarter, Indiegogo, GoFundMe, or RocketHub that meets your need, register on it, and write a solid description of your startup idea. You will need to describe your business goals, plans for making a profit, how much money you need, etc. And, if a potential investor likes your idea, they give you money for it.
Crowdfunding gives you the opportunity to spread the word about your new company, build relationships with early adopters, and inspire them to invest in you. Most importantly, as potential investors can see how many people supported your business idea, this may serve as motivation for them to put their money into it, as well.
The only problem with crowdfunding is fierce competition. Namely, the number of businesses trying to boost their capital through this funding method is rising. So, to get your business idea noticed by the right people and inspire them to invest, your business description needs to be truly authentic and stick out.
3. Take out Unsecured Business Loans
To be eligible for any form of a secured loan, you need to provide a guarantee that your loan will be repaid on time. For anyone who is just entering the world of business, this may be too risky, as these forms of collateral usually include business or personal real estate, UCC lien, home equity, inventory, business or personal vehicle, accounts receivable, and so on. Simply put, if you fail to repay your loan for any reason, a bank is entitled to take ownership of your collateral. Worse yet, getting a bank loan takes time. You may wait for weeks or even months just to find out that your request is declined.
Taking out unsecured business loans is safer for a few reasons. First, they’re more flexible, faster and easier to get, as the entire process of application is simpler. Second, given that anyone with a business history of over six months is eligible for a loan, they’re an optimal solution for startups and small businesses that want to grow their capital. Most importantly, they don’t require you to put up any collateral for a loan and risk your personal assets.
4. Angel Investors
In the entrepreneurial ecosystem, angel investors are business people with surplus money that are eager to invest in fresh business ideas. Whether they work individually or as groups, angel investors can also offer mentoring and expert guidelines. In return, they usually expect the ownership equity. In other words, they’re ready to risk by investing in a new business idea just to get higher returns.
In the sea of angel investors, the key to your success is in connecting with the person that is in the same line as you. Logically, an angel investor that has the expertise in your niche and has already financed a similar business will be more likely to invest in you. Before reaching out to them and asking for financial help, you need to connect with them on social networks and different online communities. As you get them to notice you and listen to your idea, they will give you more feedback and be more interested in investing in it.
5. Startup Accelerators
This is also a popular option among early-stage companies. Namely, accelerators are like parents to your startup. They provide it with all the tools, training, and assistance needed to grow your business faster. These programs usually run for up to 8 months and they require lots of effort and time investment on your part. Above all, you will be able to connect with other startup owners, mentors, and investors, building stronger relationships with them and setting a solid foundation for potential partnerships. According to the number of successful exits, some of the most popular startup accelerators are Y Combinator, 500 Startups, Techstars, Plug and Play, and so on.
6. Startup Competitions
Entering startup competitions is the low-risk funding option that can boost your startup’s success in multiple ways. Namely, even if you don’t win the competition and get the money needed, you will still gain publicity and put your business idea in front of a wider audience. It’s like a free ad for your business that will create buzz around your brand, as well as attract both more customers and potential investors. Some of the most popular startup contests are the Y Combinator Demo Day, Flash Pitch, Hello Tomorrow, TechCrunch Disrupt, SevenVenture Pitch Day, StartCon, and so forth.
No matter how difficult it may seem to you right now, there are numerous funding options for startups. All you need to do is choose one that aligns with your business’ goals and growth pace. Still, you should keep in mind that the process of gaining funds for your startup may be complex, so make sure you reevaluate every funding option and monitor your progress consistently.