One of the biggest initial burdens that new businesses come up against is how to find funding for their ideas.
Funding a business comes in many flavours — small business grants, startup investment, crowdfunding, business loans from a bank, etc. — and deciding which option to go for can be overwhelming.
Knowing, also, how to get that funding is key.
In this post, we cover all the different ways that a startup can be funded.
This is the traditional way to get funding for a business. It requires an excellent business plan which covers all the vital aspects of how you plan on making your new business viable.
A business plan must include elements such as:
A properly written business plan not only is a prerequisite for obtaining a business loan for your startup, but it also helps put some alignment into your business goals. A great business plan helps you see barriers before they arise and thereby increases your chances of being successful.
Crowdfunding appeared on the scene when solid business ideas weren’t getting the backing they needed from investors or banks because of “traditional reasons” (such as a bad credit record, even if the reason for that bad record was unfair). Crowdfunding disrupted the funding scene and is an accessible means of funding for any business or person.
Crowdfunding allows a business to obtain small amounts of funding from large numbers of people, as opposed to large funding from only a few people. Well-known crowdfunding sites are Kickstarter and Crowdcube.
There’s a difference between an Angel Investor and a Venture Capitalist.
An Angel Investor usually comes into the scene rather early. They help to kickstart the funding process with a relatively small loan (e.g. £25,000).
Usually, angel investors are family, friends, or even close business associates. Their expected return on the investment is usually small, unlike VCs, who are investing primarily for the potential ROI.
Angel investors usually invest in something because they believe in it, not because they think they’re going to get rich from it (although they might).
There are hundreds or perhaps even thousands of grants available for businesses. Often, these grants are aimed at assisting charitable organisations, or organisations that will bring economic improvement to a particular area or zone.
There are two tricky elements to obtaining grant funding:
In these cases, we can certainly come to the rescue with our business funding service, which has a package specifically dedicated to obtaining business funding in the form of grants.
“Bootstrapping” comes from the phrase “pull oneself up by the bootstraps”, which means to get oneself out of a situation through sheer grit and determination.
The verb, “to bootstrap” is defined as getting oneself “into or out of a situation using existing resources”. This meaning has been extended, in the modern internet age, to mean “start-up (an internet-based business or another enterprise) with minimal financial resources”.
Bootstrapping is most applicable to freelancers and other professionals who don’t need a lot of initial capital to get going. It can also work if you sell an idea before getting paid for it, then use the funds to purchase the materials needed to deliver that idea.
If, however, your startup requires a lot of initial investment of funds which you don’t personally have, bootstrapping is not really an option for you.
You can receive funding from family and friends to get your enterprise started. Technically, this would be considered “Angel Investment” although we’re speaking here more specifically of just a bit of help to get you going.
As the old saying goes, “A friend in need is a friend indeed”.
Asking friends for help comes in two shades:
In either case, you need to treat this “investment” from friends and family in the same way you would treat getting a loan from a bank. Take a professional attitude. Put a business plan together. (Although, you might need to angle the plan to be a little less pompous and more “funny” to impress your mates.)
Don’t go to your friends with cap in hand and expect a handout. Put together something that impresses them and makes them want to get on board.
Who knows, you might indeed attract the attention of someone who has a secret stash under the mattress, just waiting for an opportunity like this to pull it out!