Ok, so you have a great idea, done your research and you’re certain it’s going to fly. But how do you secure the cash to get it off the ground without robbing a bank? Well, there are multiple options depending on your circumstances and the type of business you are looking to run. Here we go.
Bootstrapping is the process of reinvesting the earnings of the business back into the company, therefore avoiding the need to raise external capital. If you have a customer ready business that people are willing to pay for, you could grow your business via this route. You could take orders in advance of delivery and only service those orders once payment has cleared. Bootstrapping for a while to build your customer base is great validation for your project. However, you will have to ensure you can deliver on your promises or you run the risk of ruining trust in your business.
Business Loans/Personal Loans
Getting a business or personal loan is a popular way of launching a new venture. The obvious downside is that you have created a liability you have to pay back regardless of how well your business is doing. The early days of most start-ups are fairly unpredictable so many loan companies will more likely not give you a business loan without some form of security, track record or a few years’ accounts. In order to get any type of loan, business or personal you will need a good credit record. Peer to peer lenders, credit cards, personal loans are all viable options but watch out for excessive interest rates and do your homework so you are sure you can pay it back.
Friends and Family
If you are fortunate enough to have friends or family that have the resources to fund your new venture, this a popular route to early-stage funding. You will need to explain that any funds invested could potentially be at risk if the venture fails. You do not want to be in the position of having disgruntled family and friends should your venture not go as planned. Be upfront about the risks as well as the potential rewards.
Grants are sources of finance that do not have to be paid back. Sounds great, doesn’t it? The issue with grants is that they are hard to come by. Application processes are usually in-depth and can take considerable time. Obviously, any offer of ‘free’ money is likely to create excessive competition for this source of finance. Grants do come at a price, you will more than likely have to keep records of how the funds are used and report back to the funding body. This could be monthly or annually. You will have to conform to the strict guidelines and criteria of the funding organisation. You may be restricted on what you can use the funds for. The other problem with grants is that they are hard to find. A good starting place would be your local government.
Crowdfunding is a relatively new way of raising capital. The idea is; a crowd of strangers invest small amounts in your business. The proceeds add up to a larger chunk that you can use to launch. This is a good way to raise funds if you have a product or service that is likely to catch the imagination of the crowd. Many sites require you reach a threshold of support before launching to the public, so considerable marketing will be required. Some successful crowdfunds have managed to raise millions of dollars.
Venture Capital firms or VCs invest using funds raised via personal investors or institutional funds. They are usually looking for high growth businesses that can generate high returns, 10x is not uncommon. VCs often have huge amounts of funds at their disposal You will need to be incorporated with the right business structure so you can easily allocate shares (equity) to the investors. After an investment round the VC will have a share in your business. Most require a position on your board for oversight. You will need to have a solid business model and preferably some traction.
Angel investors operate in much the same way as VC’s except that they are usually investing their personal capital. They are usually high net worth individuals who have run businesses before and they wish to help fledgeling businesses. Do not get confused by the word ‘angel’ they are still looking for a return on the money invested and like the VC’s they will want a stake in your business. Again, many angels are looking for high returns as they are often the first to support a business venture. Most will want to see some kind of business plan or pitch deck. Angel investors can be tricky to locate. Platforms like Pop Up World’s Investor Connector aim to simplify the process.
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