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Get Funding For Startup
The majority of entrepreneurs looking to kickstart their businesses grapple with how to get funding for a startup. Gaining access to the ideal early-stage funding for a venture can determine its growth prospects. Funding makes it easier to hire talented personnel and compete favorably in a given sector.
You need to identify the right funding sources before applying. Each option comes with specific requirements and limitations. Some of the popular startup financing options include:
- Small business loans
- Kickstarter crowdfunding
- Government grants
- Angel investors
- Incubators and accelerators
Many startups take advantage of small business loans to get the ball rolling. This option comes with pre-determined conditions and an attached interest rate. You can go for the loans if you have a sound credit record. It is vital to formulate a robust business plan before making the final decision.
Online platforms like Crunchbase provide a viable way to find the right investors. The resource allows you to search for active investors to suit specific funding and project requirements. It matches your startup with investors by location, exit count, and industry.
Crunchbase offers analytical features, which help you assess how similar startups perform in their quest for funding. Furthermore, you can benchmark your venture’s metrics using the statistics feature. Doing so provides a surefire way to determine the ideal amount to raise via the platform. The site also provides access to in-depth guides on how to get investment for startup.
Raise Money for a Startup
Angel investors provide a lucrative solution to raising capital: get the money you need to grow your business. Some angels operate as a network of investors, which enables them to evaluate proposals as a collective. In some cases, the investors provide mentoring services alongside the cash injection.
Venture capitalists, on the other hand, provide operating capital to startups with promising business prospects. This option is a practical choice for small businesses with a viable product or service. These startup funding companies also prefer startups that have undergone ideation.
To raise money for startup, you can also consider government grants. This option differs from other funding sources because the funds are not loans. Hence, many startup entrepreneurs view government grants as free money.
The United States government provides detailed information about the grants via a dedicated online portal. You can take advantage of a comprehensive array of programs available to local businesses.
With incubators and accelerators, your startup benefits from operational support during the formative stages. The accelerator aspect enables your business to boost growth through targeted expansion measures. You need to commit to the programs, which can run for periods ranging between four and eight months.
Venture capital firms offer more than just capital to selected businesses. They can also help entrepreneurs find partners, clients, highly skilled employees, and much more. However, companies raising venture capital funding only make up about 0.05% of the total entrepreneurial market. Most entrepreneurs do not secure funding via this channel.
Hence, the need to familiarize yourself with the startup funding process used by venture capital companies. For this reason, take the time to visit the relevant startup funding website to learn more about the terms and conditions. Most VC firms focus on one or a few industries, companies in specific seed funding stages, or locations.
To increase the chances of approval, consider firms whose focus aligns with your startup and funding stage. Likewise, some VCs recommend entrepreneurs avoid sending unsolicited emails but rather introduce yourself via trusted third parties. Presenting viable elevator and investor pitches is another way to increase the chances of a successful application.
The venture process requires considerable patience due to the lengthy vetting steps and deliberations concerning the startup funding series. Organizing a meeting with VC principals can be time-consuming. You may wait for several weeks before the principal grants an appointment. You should expect several additional meetings before the presentation stage, which usually involves all VC fund partners.
Once the presentation phase is complete, a term sheet’s negotiation and issuance is the next crucial step. VC analysts perform due diligence for several weeks or months before drafting and negotiation start. This process involves legal professionals from both sides. Once complete, you will receive a legal document outlining the terms and conditions of the investment.
The term sheet covers various aspects of the financing, including investors’ post-closing rights, business valuation of your startup, the board’s composition, and voting rights given to the investors. Although non-binding, the term sheet is an important document associated with the venture capital firm’s investment in the startup funding rounds.
Countless prominent businesses benefited from the startup funding process offered by angels. These companies include Alibaba, Google, and Yahoo. Unlike venture capitalists, angel investors are generally willing to provide business finance in a company’s early growth stages.
Depending on the funding agreement’s terms and conditions, the investor may require equity of up to 30 percent. Financiers typically take more risk than venture capital (VC) firms for higher returns. On the contrary, VCs invest more money into businesses than angels.
The Angel Capital Association (ACA) urges entrepreneurs to partner with accredited investors. Doing so helps bring considerable value to the venture by mentoring business owners.
In many cases, angels invest in startups to give back to their community, generate some income, or help develop promising business ventures. These types of investors typically finance projects locally or regionally. For the best results, consider approaching angel investors once the product development is complete or near completion.
Angels are more likely to consider your proposals if you prove the existence of customers willing to buy from you. Ensure that your business plan is complete and ready for presentation.
In addition, you need to demonstrate the growth potential of your startup. Investors are sure to respond positively if you prove that the business can reach $50 million or more in sales over the next three to five years.
The best part about working with angels is that they have a risk appetite compared to venture capitalists. This aspect is what every angel investor wants you to know. For this reason, you can find it easier to secure funding with angels than with small business loan applications at banks and other financial institutions.
The majority of angels are entrepreneurs with a solid track record in business management. They understand the nature of risks associated with various types of business ventures. Banks often limit the loan amount if they perceive that your venture entails considerable risk.
Crowdfunding and Investment Sites
Crowdfunding has transformed the way many small businesses raise capital. This option is a convenient option that requires limited time and attention. Most entrepreneurs opt for this funding solution as it eliminates the need to repay the capital received. To reap the rewards of crowdfunding, you should put in the effort.
Investors on the best startup investment sites like Indiegogo and Kickstarter make pledges if you work tirelessly to convince them to invest. These sites manage the interactions between investors and entrepreneurs to facilitate positive outcomes. You will find four main types of crowdfunding websites. These include:
- Equity platforms
- Donation-based crowdfunding sites
- Lending platforms
- Rewards-based investment websites
Equity sites enable entrepreneurs to reward contributors with a stake in the business venture. As a result, all contributors become stakeholders, which may be unfavorable for some business owners. Meanwhile, donation-based platforms allow entrepreneurs to receive funds without giving away a stake in the business.
Lending-based investment sites provide access to affordable business loans. You need to repay the money, sometimes with an attached interest. Rewards-based sites allow entrepreneurs to offer rewards, such as free product samples, to people who pledge and contribute varying amounts towards business startup funding.
Government Grants for Startups
Although government grants for startups can be challenging to secure, they represent one of the best options available on the market. This type of funding enables you to develop and grow your venture without worrying about repayments. The money is not repayable, thus increasing your chance of success.
You can access different startup funding grants, including minority small business grants and small business hardship grants. There is no need to put up collateral or fret about interest or exorbitant fees. However, the government may attach terms and conditions with the grant to ensure that you spend money on specific projects only.
For instance, if you apply for grants for a small business startup to develop new software, you cannot divert the grant money to pay staff or use it for other business purposes. The government may force you to reimburse the free government money start business if you disregard this requirement. In the worst-case scenario, you may face legal ramifications due to the fraudulent activity.
Additionally, when you get funding for startup via this channel, you may be required to meet specific accounting and reporting guidelines. Some of the business types that qualify for startup grants include rural businesses, innovators, and green ventures. The government usually focuses on startups operated by veterans, women, and minority-owned ventures.
Startup Funding Books and Articles
Raising capital for a startup can be a daunting but rewarding experience for entrepreneurs. Many successful business owners prepared for their fundraising efforts by learning about the process not only through entrepreneurs who have done it before, but also startup funding books and articles.
Some of the best articles and books include:
- The 10 Most Reliable Ways to Fund a Startup – offers insights on viable ways to finance your business.
- The Art of Startup Fundraising – this book takes a fresh look at strategies needed to succeed when sourcing startup funding. The publication is a comprehensive resource that provides expert guidance.
- How to Get Funding for Your Startup Book – guides you on proven ways to source, vet, and close funding deals with the right investors.
- The Startup Game: Inside the Partnership Between Venture Capitalists and Entrepreneurs – this book offers a glimpse into the relationship between entrepreneurs and venture capitalists. It outlines the importance of the relationship to the economy.
- Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist – outlines the venture capital funding process in detail and incorporates effective fundraising strategies for entrepreneurs.