You run a startup that has built a product or service that you are convinced is the next best thing after sliced bread! So how do you take your startup to the next level? Bingo! You need money! While raising funds for your startup is not as difficult a task as you think it is, identifying the right source of funding is a tad more complex. Here are five ways to help you in making the right choice.
Unarguably, one of the most common sources of funding, Bootstrapping involves you dipping into your own savings to get your startup up and running. Other than this, it also involves using your company’s resources efficiently with the purpose of freeing up additional capital or meeting the necessary operational expenses.
Bootstrapping has numerous advantages, the primary one being a high valuation of your startup considering that a comparatively lesser portion of your invested capital is borrowed, which also means fewer interest payouts. Further, a startup that has less debt in its account books is certainly favoured by external investors. Another aspect that impresses angel investors and seed funders is the commitment demonstrated by you towards your startup by the fact of having invested your own money. Aren’t you happy for having inculcated the habit of saving early?
Family and Friends
Do you have a large extended family and a wide circle of friends? Yes? Great! They could be your next source of investors for your dream startup. It is a win-win situation if you play your cards well – with you building a successful business and them laughing all the way to the bank.
However, it could be a double-edged sword, so make sure that you are borrowing money that they can afford to lose. Also be aware that such arrangements can ruin personal relationships if things go wrong. You do want to be invited to your cousin’s wedding, right? Consider drafting a written lending agreement with clearly defined terms and conditions even if it is what is known as a “friendly” loan to avoid any pitfalls. As the saying goes – it is better to be safe than sorry!
Crowdfunding to raise money for your startup is also worth a shot. It basically means that your business is being funded by the public using their own personal funds. To get started, you need to sell your business idea or startup on a popular crowdfunding site like Fundable, Kickstarter or Indiegogo in a way that people see some sort of value in it for themselves.
The power of crowd funding can be highlighted by the recent raising of more than $54,000 by Bangalore-based Connovate Technology after a contribution by Apple’s co-founder, Steve Wozniak. While lady luck may not smile on all entrepreneurs out there to have a Wozniak set the ball rolling, it certainly makes sense to tap into this source while raising funds.
The thumb rule though would be to make sure that their goals for the business are in line with yours to avoid any future conflict. It also makes a lot of sense to have a buy-out agreement in place in case there is a need to part ways in future.
Getting your startup into an incubator program promises more than just money. The mentorship and guidance that comes as part of the package is certain to work wonders for your business. Spanning a few months, an incubator program gives you an enviable access to some of the rock stars in the startup and business world. You also get the chance to be part of a network that can help you get in touch with potential partners and customers.
The cherry on the cake is the opportunity to present your business in front of some of the best angel investors and venture capitalists for your next round of funding.
With the plethora of funding options available today, it is only a matter of making the right choice for your business. Keep in mind the amount of funding you need, the type of business you are in and how much control you are ready to forego among many other things before zeroing on the source you think fits best.