For many, the decision about whether or not now is the right time to start a business comes down to funding. There are quite a few different ways that you can go about funding a startup, but not all are created equal. You may have a wonderful business idea that you have perfected, but it won’t mean much if you don’t have the funding in place to not only make your business happen, but allow it to succeed.
It’s important to analyze all angles of your business and your future goals and then analyze each type of funding opportunity so that you make sure you’re starting your business off on the right foot. One wrong move when it comes to finances and you could be back to square one. Below are the five best and most popular options for funding a startup:
This is one of the newer ways of funding a startup that has just recently taken the world by storm. Platforms like Kickstarter or Indiegogo are great examples of websites where you create a crowdfunding campaign. If you’ve never heard of it, the way it works is this: Anyone can contribute money toward helping a business that they really believe in. An entrepreneur will put up a detailed description of his/her business on a platform such as Kickstarter–goals of the business, future financial strategies for turning a profit, the target audience, how much funding he/she needs and for what reasons, etc.–and then consumers can read about the business and give money if they choose. Generally, those giving money will make online pledges with the promise of pre-buying the product, giving a donation, or earning some type of reward (anything from a free notepad to a free iPod).
Keep in mind, however, that although crowdfunding campaigns may be trendy, there are hundreds of campaigns that go unfunded each year through this method. This is a competitive place to earn funding, so unless your business is absolutely rock solid and can gain the attention of the average consumers through just a description and some images online, you may not find crowdfunding to work for you in the end. According to startup veteran Drew Hendricks, “The most successful campaigns seem to come with a good story. While most Entrepreneurs are inclined to highlight the product and hide in the background, on crowdfunding sites, the entrepreneur is the story.”
- Venture Capitalist.
A venture capitalist investor is essentially a professional group that looks specifically for startups to fund. As you might imagine, this option has a lot of money available to offer to startups and plenty of resources to actually help your business succeed. For many, a venture capitalist would be the ideal funding situation.
However, there are a few major downsides to this option. For one, they typically look for larger opportunities that are a little bit more stable, meaning the company would need a strong team of people and a even few million dollars. You also have to be flexible with your business and sometimes give up a little bit more control, so if you’re not interested in too much mentorship or compromise, this might not be your best option.
- Angel Investor.
Angel investors work similarly to venture capitalists except they are much smaller operation, sometimes only one person. They oftentimes want a large portion of your company, meaning when you make money, they also make money (for example, owning 49 percent of your company is not unheard of with an angel investor). In the end, this is actually probably one of the most popular options for those who are really series about funding a startup because it allows you to keep control over your company, earn mentorship when it’s needed, and hopefully make money as your company continues to grow.
- Small Business Loan.
Oftentimes the first place that entrepreneurs go when thinking about funding is the bank. There are many specialized options available for situations like small business ownership (such as microloans), but your obstacle here is finding your way through such a tough lending period. When you go into the bank, you have to have to be able to present how every penny of the loan will be spent, and even then sometimes a first-time business owner seems too risky to the bank and you won’t get the loan.
- Credit Cards.
If you have an excellent credit history, you may be able to use that to help you use a line of credit to fund your startup. There are specific credit cards designed for entrepreneurs, so visit your bank and talk about some of your options. This is definitely the riskiest option on the list, but if you can make it work, it can likely offer you the best results from the perspective of having –full control and full ownership of your company.
The above 5 ways for funding a startup are a great place to start and bring the most success to the majority of companies. However, there are other, less-popular options for funding including self-funding, sweat equity, government grants, and more that do work best for certain situations.