Have you ever wanted to start your own business? Becoming an entrepreneur can be both a challenging and rewarding experience. Having a great idea for a startup is only part of the equation. Whether you’re creating a small business, or tomorrow’s Fortune 500, properly funding your venture is key to a successful startup.
Here are five ways to get funding for your startup:
1. Self-funding your startup
Make yourself the first investor in your new business. Self-funding allows you to retain full control over your business. You may be asking yourself, can I really start my business with my own finances?
The short answer is yes.
Here are some tips to self-fund your business successfully:
Keep your hiring costs low. When you’re just starting the business, you’ll have to take on many roles of the business yourself. There’s many tools available to help you with accounting, web design, advertising, and other aspects of your business. There may be some tasks you can’t do on your own; for these you can work with freelancers as needed.
Borrow from your 401(k)-retirement plan. Many entrepreneurs start their business while still working full time at their current job. Most retirement plans allow you to borrow up to 50% of the value of your vested balance. The interest rate is lower compared to a traditional bank loan as well. One downside is that if you leave your job, you have up to 60 days to repay the loan. Otherwise there could be taxes and penalties.
For additional tips on self-funding your new startup, take a look at this article from Entrepreneur.
2. Crowdfunding Campaign
A popular fundraising option for a startup in recent years, crowdfunding allows you to raise small amounts of money from multiple donors.
Equity-based crowdfunding makes contributors part owners in your business and can be a good option for raising large sums of money to start your business.
Reward based crowdfunding is another alternative (think Kickstarter) for businesses that will be selling a product. These contributors usually get the product at a discount and/or bonus rewards based on contribution levels.
Here are some tips that will help you manage a crowdfunding campaign:
Calculate the cost of your startup. Research the cost of equipment, location, and other necessities to start up the business.
Be active on social media. Contributors like to receive regular updates on the progress of the startup/project.
Have a clear goal. Be transparent with your contributors on what your business plan is. Make sure that you’re raising enough funds so that you don’t have to repeat this process a year down the line.
3. Venture Capital
Most venture capital investors finance startups while they’re still taking off of the ground. There are two types of Venture capital funding, equity provides stock to the investor so that they can share in the profits. Convertible debt allows investors to loan funds in exchange for equity within the company. Here are some tips for having a venture capital source the funds.
Create a strong business plan. Potential VC investors want to make sure that they’re making a wise investment that has a strong potential for growth. Do a SWOT analysis of your startup. This is broken down into internal factors: Strengths, weaknesses and external factors: potential opportunities and threats.
Utilize online networking to connect with other entrepreneurs, and business leaders. Not only can you get advice from others that have been in your position, they can introduce you to firms that deal with VC funding
For additional tips on acquiring Venture Capital, take a look at this article by Ryan Fuhrmann.
4. Startup Incubator/Accelerator Organizations
Do you like collaborating with other entrepreneurs? Startup incubators aren’t limited to the tech industry. If you’re getting started as an entrepreneur, an incubator can be a great option to get seed funding, mentors, and networking opportunities. Here are some tips for finding the right incubator/accelerator to get your business off of the ground:
Research the right incubator program for your business idea. If you find an incubator that has goals that align with your ideas, reach out to people who’ve previously gone through the program. They can share information on their experience to give you a better idea on if it’s a fit.
Be passionate about your business idea. Most incubators require you to dedicate a lot of time. When creating your business pitch, you need to convince the incubator that your business idea will be successful with or without them- they want to see that you have something to bring to the table.
Take a look at the article from the Young Entrepreneur Council for other tips on getting the most out of an incubator.
5. Angel Funding
Angel investors. So, what are they all about? These investors focus on investing in startups and entrepreneurs using their own money to fund the capital needed for the business. In exchange for funds, angel investors gain ownership equity in your business. Here are some tips for attracting angel investors to your startup.
Invest your own money. While this can sound counterproductive, many angel investors want to see that your business venture has potential.
Build a plan. Think about these questions. What will these funds allow your business to do that you can’t do on your own? How many similar businesses are there? How profitable is this venture?
If you’re just starting your business, or you’ve been thinking about it, I hope that you found these tips helpful.
Lack of funding is one of the driving factors that cause business failures in their first couple of years. As a last resort, take a look at getting a cash loan till payday. Used responsibly it can get you out of a bind.
Let me know if you’ve been able to use any of these tips to fund your startup and if you have any advice on your own, feel free to share them with me.