April 15, 2016
Like it or not, money is everything in the world of startups. Without it, you are never going to make your dreams a reality. Funding your startup is the first big obstacle you have to overcome, before you start to think about product development and marketing.
There are many ways to potentially fund a startup. And this guide is going to show you some of the ways you can go about it.
Friends and Family
Most entrepreneurs acquire their first customers through their existing networks. The same principle can apply to finding people to fund your business. So many successful businesses have started off because they raised money from friends and family members.
You may decide to fund your startup through accepting donations, personal loans, or just using their skills to help you get things done. The best practices here are to just ask because you’ll be surprised at how many people are willing to help.
There’s nothing better than getting a private lender to give you money. This way you don’t have to accept any involvement from government startup schemes and you don’t have to feel guilty about taking money from family. There are so many private lenders in the world today that you really are spoiled for choice.
Do your research because it’s not always the case that all lenders are created equal. Check their terms and check whether they have a good online reputation. You don’t want to have a private lender that becomes an obstacle because they are always asking for money.
The growth in crowdfunding has led to an incredible number of businesses getting off the ground. Sites like Indiegogo, Kickstarter, and GoFundMe are just the tip of the iceberg in this growing niche. This is about startups reaching out to their target audience to make them a part of the journey your baby is about to take.
Not only are you getting money you are getting a community that’s going to be interested in your product. The community is often more valuable than the actual money because it makes it far easier to create a buzz.
Angel and Seed Investors
Angel and seed investors can be found from practically anywhere because they want to fund smart people with great ideas. You may find them in your personal network or they could come from the Internet. Your angel or seed investor provides you with far more than an injection of capital. They are there to make sure that your business gets off the ground. You suddenly have access to an established network of business expertise.
Be aware that the main quality angel investors want to see is a solid business plan to convince one of these investors to take a chance on you. Remember that you are going to be taking up their time as well as money.
If you need money now, a short-term option is to eat into your credit card balance. Use your personal credit card balance to do this. Don’t borrow off the credit cards of other people because this can easily come back to bite you. Be careful when using credit cards because it can easily go wrong.
Take note that this is a short-term option only. Take up too much of your balance and you could find yourself with a credit score that’s in the gutter.
The Bootstrapping Option
The term ‘bootstrapping’ is applied to businesses that are starting from a position of a lack of investment. They are terminally short of cash and they have to get creative in order to get things done. For the entrepreneur, this can teach them some valuable lessons and can actually reduce the overall costs of starting up a business.
It also comes with the benefit of no responsibilities. If you are self-funding your startup, you have nobody to pay back and you have no need to worry about reporting your performance after a particularly slow period. It’s becoming an increasingly trendy option for many startups, with 80 percent of startups self-funding.
Regardless of the way you decide to fund your startup, make sure that you have taken your product for a test drive first. The worst thing you can do is to fund something that has no chance of gaining any traction with customers. This is why many entrepreneurs decide to create a small prototype and then commit to some basic market testing prior to seeking out any investment.
How are you going to fund your startup?
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