Startup funding strategies are difficult to acquire when starting from the very beginning. Many are confused about where to get the capital to secure equipment, staff, and product maintenance. It’s important to acknowledge that you’re not alone in such cases.
Many experienced business owners have succeeded and repeated startup funding. Experience is key to effective startup business plans that will grow seamlessly over time. Learning their startup funding strategies and the techniques they use to acquire capital is a great way to start understanding the key components of business.
Aspiring entrepreneurs can learn to evade common errors started with startup funding and continue to grow their businesses smoothly with these strategies.
What is startup funding?
Startups are usually funded in large amounts to be used for the business’ growth. These funds are collected first before the initial steps of a company to its release.
The risk of failure during these stages is quite high. The company can fall off its footing if not taken care of properly. However, innovation is the strength of a startup company. A strong startup team with great drive can overcome these issues. The only hiccup would be the funding itself.
Every business requires funding. Especially one that’s just coming out of its shell. Startup funding pertains to the money used during the first stages of a business. It can get costly and revenue could become limited. That’s why most business owners look out for startup funding.
Why is funding essential for startups?
Startup businesses stem from innovation and drive. However, sheer will does not help a company get up on its feet alone. Funding is required to scale, grow, and stabilise a startup business. Those who undermine the necessity of capital tend to fail quite early in the game. Meanwhile, companies that invest heavily in their funding generate more success than the others.
10 Effective Startup Funding Strategies
Knowing the importance of startup funding strategies is one thing, but understanding these methods and choosing is another. Browse through these 10 effective strategies and analyse which one will work best for your company. Take note that you don’t need to stick to one method, there are plenty of businesses who use these strategies simultaneously.
Bootstrapping
Some startup funding strategies are familiar. However, the term bootstrapping may be new to business owners. What is bootstrapping? Bootstrapping is using personal finances or operating revenue to fund the startup’s investment. In other words, bootstrapping requires no outside capital help apart from its founders.
This type of method does not look to outsider funding; if they do, it’s usually minimal. Bootstrapping can be spotted from its limited sources of financing. It has plenty of high-risk, and without a development strategy, it’s likely to fail.
Friends & Family
If more traditional lenders aren’t an option, family loans may help fund your startup funding strategies. While these loans may come with little or no interest obligations, they can be costly if they begin to affect your personal relationships. Putting the loan terms in writing can help set clear expectations for both parties, as well as make sure everyone understands and accepts the risks involved.
The cons of using funding from friends and family are the possible aftereffects that could damage your relationship. Without open communication, relationships could probably turn sour if the business has potential setbacks. Prioritise opening the risk and possible outcomes before requesting funding and ensuring a healthy balance between work and personal affairs.
The pros of family and friends as your source of funding is the lack of interest rates. Personal relationships are different from traditional funding which requires a more professional approach. They are more relaxed and lack strict deadlines.
Angel Investors
Startup funding strategies like angel investors deviate from the normal calculated responses of other traditional funding methods. This is because the approach of an angel investor varies depending on their personality and work ethic.
Angel investors are usually wealthy individuals who are convinced that the startup is worth investing in. Angel investors have a wide variety of personalities and methods of investing. Some angel investors are more hands-on and participate in the decisions made for the company. Meanwhile, other angel investors prefer to wait for the growth of the business and let the founders handle the affairs on their own.
Venture Capital
Startup funding strategies like venture capital come from private equity. These venture capitalists tend to invest in multiple companies with the same goal. It’s a type of investment that deals mostly with financing businesses by managing money from different sources they’ve collected, such as individuals, corporations, foundations, and more.
While this ensures your startup’s funding, there are downsides to using venture capital as your strategy. Most of the time, venture capitalists invest in a business for ownership or equity in a startup in which they find potential. Sometimes, venture capitalists go as far as controlling more than half of the business itself.
Take note that while a majority of venture capitalist firms are financial-based, there are some with different types of services like technology, management, and other resources necessary for the growth of a budding business.
Crowdfunding
Crowdfunding stands out greatly among the other startup funding strategies due to its nature. The process of crowdfunding is to increase awareness of the need for the startup’s financial capital in various manners to gain the attention of numerous investors’ aid. Usually, startup businesses that use the crowdfunding method look to the Internet to broadcast their needs.
There are two types of crowdfunding: donation-based and investment crowdfunding. Donation-based crowdfunding relies on donors to contribute to a product’s development funding. It’s largely used by those with projects that are creative by nature like films and music.
Investment crowdfunding is the one we’re referring to in startup funding strategies. This is when businesses sell ownership stakes online in the form of debt or equity. Unlike donation-based crowdfunding, those who invest in the startup business become owners and shareholders with financial return.
Business Loans & Debt Financing
You can’t get any more traditional than startup funding strategies like business loans and debt financing. Startup funding strategies like business loans are self-explanatory. It’s the process of
acquiring funding through loans that one must pay with interest. The loans are applied from online lending businesses, banks, or credit unions. They have a strict policy in terms of repayment terms
and interest rates that vary. If you wish to choose this method, carefully analyse the growth potential of your business and choose from a wide variety of lenders before continuing.
Debt financing is the type of business loan mostly used in startup businesses. There are three types of debt financing options: bank loans, bond issues, and family or credit card loans.
Government Grants
Official startup funding strategies like a government grant are provided by your country’s people of authority. They usually transfer the payment and do not include any assistance, loans, direct appropriation, or more. The benefit of government grants is there is no need to repay the money. However, it is expected to be used for the purpose it was given. Especially since government grants are given for the country’s benefit. There are even times when revenue-sharing agreements with the government can lead to a profit-generating patent, depending on the uniqueness of the product.
The requirement to have a government grant is for the idea to stimulate the economy and provide public services. These can include recovery initiatives and innovative research. Compliance and reports
are consistently taken note of to ensure the money is spent for its purpose. It is an honour to receive a government grant, and the attention it generates creates more networking opportunities for private donors and other revenue sources.
Incubators & Accelerators
Incubators and accelerators are a great way to boost startup funding strategies you may already have in your arsenal. Joining a startup program includes many benefits, such as mentorship, financial investments, and assessments within the many programs offered.
There is a wide variety of startup programs that business owners can apply to. While this may be a good thing, it’s also important to carefully choose which program benefits your business well.
Revenue-Based Financing
Strategic partnerships in revenue-based financing are start-up funding strategies that require collaboration with outside investors. Revenue-based financing funds businesses in exchange for future
revenue. Before being deemed qualified for revenue-based finance, the lenders must look into a business’s financial history for your credibility.
However, the future revenue is expected to be paid every month in percentages. You can choose higher-revenue or lower-revenue monthly payments. Higher-revenue payments are shorter in period but the payments are higher. Meanwhile, lower-revenue monthly payments last longer but payments are significantly lower.
The bright side of revenue-based financing is that there is no need to propose a pitch deck or explain detailed business plans. Lenders instead look into your back-end systems and project revenue to make the funding decision within just a few days.
Pre-sales & Pre-orders
Pre-sales and pre-orders are startup funding strategies that switch steps when starting a business. The traditional path of a business is to create and then promote it to those who wish to use it.
However, pre-sales and pre-orders only begin creation when demand is present. The method of pre-sales and pre-orders are financially less risky than traditional business paths.
The benefit of using pre-sales and pre-orders is risk management and reducing time or effort. It’s a failsafe method that tests if there are potential customers interested in buying your product without investing too much.
Another benefit is the possibility of feedback from audience members who are interested in buying your product. This can help you improve your product and build a relationship with your audience.
Conclusion
Startup funding strategies are wide in variety. Unfortunately, many undermine the importance of accurately planning their startup business growth. To ensure the quality of your business’ performance and ROI, it’s crucial to understand the necessity of investing in the company’s maintenance and production.
Everything could go awry if not planned properly and this is especially true for aspiring entrepreneurs. Luckily, we have more than enough experience to lend a hand. Join our Startup Incubator Program, and we will connect you with a network of investors and mentors. Sign up now!