By Ben on September 11, 2012
Getting a new company off the ground is never easy. Capital is needed to grow and scale the business. What are the top sources for funding your startup?
1. Bootstrap the Business – If you can finance the growth of your business on your own, this is definitely the preferred option. You keep control of the business and you minimize your liabilities. You don’t have to deal with shareholders or anyone telling you how to run the business. The further you can go on your own resources the better your position long term.
2. Friends and Family – These people are the closest to you and know you best. They are your first line of support. It is a good test of how serious people take your efforts. Many investors actually look to see that family and friends have stepped forward to support your business and ask questions if they haven’t. If you can’t fund the business yourself, this is your next best option!
3. Small Business Grants – There are a growing number of programs that look to support entrepreneurship development. The degree to which they ask for social or commercial returns varies. Usually these funding vehicles take a geographic or thematic approach. Its worth doing some research to find the financing programs that best fits the DNA of your business.
4. Incubators and Accelerators – In the past two years we have seen an increasing number of startup incubators and accelerators come online. These are often based in major capitals. Some are government funded, others are tied to a University or receive grant funding, while many have a more independent status. They often offer intense programs combined with physical working space, some starting capital, and mentorship.
6. Angel investors – For those looking for $10,000 to $250,000, it makes sense to reach out to angel networks. Networking is critical and as an entrepreneur you will have to invest considerable time and energy creating the visibility and trust needed to secure investment. Angel Investors come in all shapes and sizes and again you will have to do considerable research to find the person that best fits your business.
7. Venture capital – For VCs to take you seriously they will be looking for advanced prototype or working product. Most often they want to see traction and revenue. It doesn’t make sense to approach VC funds if your venture is still in the early stages of development. It wont be worth the time for the investor and they are unable to take risk so early on. Venture Capital is relevant when ventures are really looking to scale. Raising a round can take half a year or longer so start early!
8. Loans and Credit – If your business already generates revenue and is looking for working capital, it makes sense to start talking to local banks and other small business financiers. Sometimes there are government or subsidy backed schemes that can get you a favorable interest rate. Sometimes the entrepreneur will be asked to put up collateral which can be hard to do if you don’t own a car, house or have other assets.
There are other ways to finance a company. Here is a post on how to finance your business with supplier credit for example. We are always curious to get your feedback.