Study shows that over 94% of new businesses fail during the first year of operation. One of the critical factors is a lack of finance. Money is the lifeblood of any business. The long, arduous, but fascinating path from concept to revenue-generating firm necessitates the use of cash as fuel. Thus, entrepreneurs inquire several times at every step of their business about how to fund their start-up. Self-funded (bootstrapped) businesses, for example, rely on timely infusions of cash to stay afloat. The creation of a treasure chest is unusual for a business, even when it was sparked by an original idea and supported by a good business plan. When you need money is determined mainly by the kind and style of your firm. On the other hand, the world of fund-raising appears confusing and demanding to a first-time entrepreneur. However, if you’ve determined that you need to raise funds, the following are some of the several financing options open to you.
Alternate Funding Options for start-ups:
Starting a business on a shoestring budget:
Start-up companies often use self-funding, or bootstrapping, as a practical means to obtain funds, especially if they are starting. A first-time entrepreneur with no traction or a plan for success has a hard time securing capital. You can use your finances or enlist the help of family members. Since fewer formalities and compliances are required and the raising expenses are lower, this will be easy to raise. As a first funding option, self-financing and bootstrapping should be the best alternative since relatives and friends are usually willing to work with you on the interest rate. Your relationship with the corporate world is inextricable when you have your own money. Investing in this field at a later date will benefit the investor, but only if you have a limited initial need for it. In some instances, bootstrapping is not the best option since they need funds from the beginning.
Crowd-funding as a Source of Capital:
In recent years, crowd-funding has gained increasing popularity. It is essentially a way to get loans from strangers, donations, or investments from several people at once.
This is how crowd-sourcing works: An entrepreneur will use a crowd-funding site to post a thorough description of the firm. Public donations may occur if the concept appeals to them. As well as stating the goals of the business and the strategy for generating profits, the entrepreneur will also explain why and how much cash is needed. Those who donate money will make online commitments in exchange for a chance to pre-order the goods or contribute. Crowd-funding is a relatively new method of raising funds for a company that has recently gained traction. It’s the equivalent of simultaneously receiving a loan, pre-order, donation, or investment from many people.
Furthermore, consider that crowd-funding is a competitive way to raise money, so unless your firm is rock solid and can attract regular consumers with only a description and a few photographs on the internet, crowd-funding may not be helpful to you.
How to Attract Angel Investment for Your Start-up:
Angel investors are individuals with extra income and a strong desire to invest in new businesses. In addition to funding and mentorship, they can provide advice and participate in networks of peers to review ideas together before investing.
This type of investment is most common in a company’s early phases of development, with investors anticipating up to 30% ownership. They prefer to take more risks in exchange for better returns when investing.
Obtain Funding from Incubators and Accelerators:
Early-stage companies may want to consider incubators and accelerators as a funding option. These programs are available in almost every major city and assist hundreds of start-ups each year. Despite being used interchangeably, there are a few key distinctions between the two names. Incubators are similar to a parent to a kid, nurturing the business by providing shelter, resources, training, and a network. Accelerators are similar to incubators; however, an incubator helps a business walk, whereas an accelerator helps a firm run/take a significant jump.
Invest in Venture Capital:
Investing in high-potential companies is the goal of venture capital funds. They frequently invest in a company with their own money and depart when it goes public or is acquired. VCs give knowledge and coaching and serve as a litmus test for where the company is headed, assessing the company’s long-term viability and scalability. An investment by venture capital may be appropriate for small businesses already generating revenue and have passed the start-up phase.
Venture Capitalists can be a good source of finance but there are a few drawbacks. VCs have a short leash and frequently want to recoup their investment within a three-year to five-year time frame for corporate loyalty. If your product takes longer than that to reach the market, venture capitalists may be less interested in you.
