Starting a business is more than just having a logo, website, social media channels, and location. You also need a market-ready minimum viable product (MVP). And an MVP requires adequate funds if you want your idea to come to fruition.
That said, you need to know where you can get the funds.
Importance of Startup Funding
The quality of product or service your startup can provide will depend on its financial situation. This explains why you must have an adequate startup fund.
After all, it can take years before your new company can prove its salt. Plus, funding has a couple of purposes:
⦁ Seed money. This is the money you use to get your business started.
⦁ Better cash flow. You will need funds for your business's day-to-day expenses to ensure that it stays afloat.
⦁ Expansion. If you want to expand your startup, you will need adequate funds to do that.
Now that you understand the importance of startup funding, we have listed eight ways to acquire funds for your new company.
Crowdfunding became popular through websites like Kickstarter, Indiegogo, and Patreon.
In a nutshell, it is the process of asking the masses to fund your project. In exchange, your funders will get first dibs on the prototype.
According to Arsalan Sajid, crowdfunding is one of the safest ways to get startup funds. That's because the crowd is less likely to ask you to give something back. However, they would want to get their hand on your product or service.
That said, having a prototype that can solve a problem is an excellent way to compel people to fund your project.
Another excellent way to acquire funds for your startup is to join pitching competitions.
What happens in such a competition is that you will pitch an epic startup idea. If the judges loved your idea, you could win a startup fund, sometimes in exchange for equity.
So, where can you find pitching competitions? Check if there are any startup events in your area. You can also sign up on websites like Meetup, allowing you to be part of an online community of like-minded people.
PRO TIP: Before you join a pitching competition, ask yourself whether this contest can help you achieve your goals even if you lose.
Often, you will be unlucky to win a funding opportunity. But a pitching competition allows you to meet investors or people who can be part of your startup.
Angel investors are private individuals who invest in a startup during the seed fund stage. They are called "angels" because of the risk they make when funding a new company.
But other than having funds, angel investors are also generous with their knowledge. Meaning, they can guide you on how you can protect and expand your startup.
That said, you must look for angel investors who are known to fund startups like yours. If you are in the Life Sciences sector, that would mean looking for the right life science investor.
If your startup has the potential for a high return on investment, consider reaching out to venture capitalists.
These VC firms are limited partnership or limited liability company (LLC) that invests in startup businesses. They are always on the lookout for startups that need funds in exchange for equity.
What does this mean? They will fund your startup in exchange for being a stakeholder. It is just a matter of finding a VC that can provide you with a win-win solution. Otherwise, you are risking your startup being take over by your investor.
Startup incubators do not necessarily fund startups. What they do is incubate your company until it is mature enough to apply for an accelerator.
This is done by providing mentorship, office space, and helping you build a network of investors. And the incubation period can range from three months to a year.
However, there are startup incubators that fund new companies in exchange for equity. Hence, be sure to check when applying for a slot. It would also come in handy if you already have a workable prototype.
To some, they consider startup accelerators as the second level of startup funding. However, not every new company needs an accelerator, especially if it is getting traction on its own.
Otherwise, you will need an MVP that is already in the market before joining an accelerator. That's because they have a competitive selection process. This means that you need to compete against other startups to join.
And unlike incubators, accelerators provide fixed incubation terms. It is like allowing you to use their connections and resources for six months at most. This includes the use of their office space and being part of their intense mentorship program.
Government Grants or Programs
Startups are considered as problem-solver. And depending on what your products can do, you can consider applying for a government grant.
The only caveat is that it is not for everyone. In the US, they provide funding options for non-profit startups. Meanwhile, for-profit startups can apply for a loan.
Regardless, it would be best to have a business plan with a loan package for a particular participating lender. That way, the government would know who to pay in case you default. The important thing to know when applying for a grant is to know how to manage the whole project after you get your grant and to justify the costs. If you have never done that before, explore the free Gantt chart software list which will make your project management easier.
According to Investopedia, bootstrapping is building a company from the group up with nothing your personal savings.
What's cool about bootstrapping is you have full ownership of your startup business. However, it can be challenging to scale your company with bootstrap alone.
Hence, it is advisable only to start a business if you can fund your business for three years.
Keep the Liability to a Minimum
Having adequate funds allows you to turn your startup idea into reality. And the key to finding the right startup fund is keeping the liability to a minimum.
Otherwise, you can risk incurring the following:
⦁ Loss of valuable opportunities
⦁ Loss of relationships
⦁ Significant financial penalties
⦁ Damage reputation
That said, proper funding will allow you to mitigate those risks and make your startup business grow.