If you do a simple search on Google, you will get to know how much money is being invested in new start-ups on a regular basis. In 2014, close to 25 billion dollars were invested in new businesses. Start-ups in US alone account for close to 20% job creation and are very important to its economy.
Finding that much-required capital for your start-up is not an easy job. According to latest reports, nearly 94% of new businesses fail within a year of its inception. The main reason was the lack of funding. Many entrepreneurs struggle from the ideation to revenue generating business journey to raise the required capital.
Below mentioned are 7 such ways to raise money for your start-up business:
Bootstrapping is also known as self-funding and is one of the most effective ways to finance your start-up. Almost all first-time entrepreneurs struggle to get investment without showing their potential plan for success, and that needs some sort of sneak peek into your business which will happen only if you have some initial money that has been drafted into your business. This kind of money is somewhat easy to get as there will be fewer complications and formalities, and most of the money that will be invested by your family and friends.
Though crowd-funding is still new as a means to raise money for your start-up, but is becoming very popular lately. There are many success stories already with regards to crowd-funding. A movie (Lucia) from India was completely done via crowd funding. Crowd-funding gets its name from the fact that your start-up will be funded by normal people using their own personal funds. The whole crowd funding thing is simple, you have to just give details about your start-up and its journey on a crowd funding platform where people read about your project and invest in your business.
Getting angel investment is comparatively easy than VC funding. Angel Investors are those who have surplus cash with them and are keen on investing in upcoming start-ups. Some of the biggest companies in the world such as Google, Skype, Facebook, and Twitter have all received angel investing upfront. Some of the angel investors work in groups to screen businesses before investing and offer expert advice by mentoring all along. Usually, angel investing happens during the early growth stage of the start-up and investors expect up to 30% equity. It is just that they take greater risks in investment and expect higher returns.
If you think your start-up has what it takes to make it big, then surely few of the VCs will be evaluating your business and its potential. This is where big bets are made on start-ups and VCs are professionally managed funds who clearly invest in businesses that have far greater potential. VCs invest in a business which is against equity and they exit when there is an Initial Public Offering (IPO) or if the start-up is getting acquired. VCs come with the whole package, not only money but they also provide their expertise with regards to where the business is heading and evaluating business from both scalability and sustainability point of view.
Business Cash Advances
In fact, this is an alternative way to raise money if nothing else is working in your favor. There are many numbers of merchant account companies / digital payment solution providers who give advances against future credit card sales receipts. Earlier this used to be an expensive way to raise money. But today’s business cash advance programs offer very attractive terms and hybrid programs that come in the form of “working capital loan” or “line of credit.” Still confused? Your business has advanced the money and you will be repaying it from the future sales. You will be able to apply for this through online in a matter of minutes.
Bank Loans / Bank Financing
Bank loans / bank financing has been one of the most common ways and a traditional way to raise capital for businesses across the globe. In the US, your bank will ask for the loan to be guaranteed by the Small Business Association (SBA) before approval of the loan amount. The SBA is a government agency which gives guarantee up to 80% of the loan value after applicants meeting certain criteria. However, you may also offer security in the form of you home and other personal assets to get your loan approved.
Seed Funding by Business Partner
The situation is, you might not have the money to get your business started but you may know a person who does. Of the top 500 companies in the world, nearly 28% received seed funding from a co-founder or a business partner.
The whole business partner thing is a tricky situation. At any point in time there might be a difference of opinion and there goes your funding out of the door. So, carefully choose your business partner, someone who shares the same vision and goals. Make sure you have buyout agreement in place if things breakdown in future and that too within a set time frame.
There are many options to get funding, but as a business owner, you need to have clarity on how much funding is really needed. Also, you can learn a lot from Mark Zuckerberg, the founder, and CEO of Facebook. He did not give his equity to VCs just to get funded like the earlier dot-com companies. His 28% stake in Facebook is now worth close to $15 billion. Be careful while negotiating financial terms with your investor, as the difference may be worth millions of dollars.