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Startups

Startup Funding: Everything An Entrepreneur Needs To Know

Startup Funding Pig

Updated on September 18th 2019.

A market-changing idea, pockets full of enthusiasm and a bit of capital.

This is what every team needs in order to get a startup funded. However, even though this may sound simple, it is far from it. In fact, startup funding is one of the common challenges that new organizations face.

Before starting to raise funds for some project, everyone needs to understand that there are different stages of each startup’s lifecycle.

Below, we are listing different methods in order to ramp up your efficiency – and obviously – get your startup funded over time.

The Idea Phase: Your First Stop

Your idea should be the first stop. You should think and rethink whether it’s worth the implementation. Even though it may seem perfect or too good to be true, your business idea should cover many different points.

Excitement is certainly not the only thing you need here. You should also do market research, find the target audience, see if it’s within your scope and calculate how much money you need for a solid start.

Startup Cash Plan

Plan Your Business

Next up, you should transform your thoughts into action. Making a business plan is one of the best ways to do that – just like identifying the financial and regulatory requirements needed to begin.

Creating a business plan is a crucial step in the development of each startup. Accurate documentation and a solid foundation must be there so that your business plan is solid from a legal standpoint.

As a finishing touch, you need to analyze how much money you need for a start – calculating the income and expenses. Make sure to double-check your calculations and again, move towards the next step which is looking for investors.

Learn About The Most Popular Startup Funding Options

There are many different options for raising money for your startup. Just like every other business, money is what turns your great ideas into great products for the market.

One of the popular options for startups is self-funding (also known as bootstrapping). Even if you have little money, it is worth considering the benefits – mostly because all of it is yours and you don’t have to rely on future funding rounds.

If you cannot manage to get funded by yourself, you can ask for help from local investors. Friends and family investors are common in this phase, and there are types of loans and stock purchases which they can cover. To protect yourself and them, however, you need to have a clear written agreement that covers their perspective and outlines how the money will be repaid in any negative scenarios.

Startup Funding Options

Other popular options for raising money when self-funding (bootstrapping) won’t work include…

Crowdfunding

The concept of crowdfunding has been very popular over the past years. Platforms such as Kickstarter and Indiegogo offer a great way for new startups to pitch their idea and give you a unique opportunity to implement them and deliver directly to your consumers.

The good thing is that you don’t have to give away equity in your business – and that you can get instant feedback early-on in the innovation process. On top of this, crowdfunding helps you get closer with your target audience.

The drawbacks include the time spent in pitching your idea and creating an attractive project plan, your limited financing options when promoting in this area, as well as the time and resources needed for your marketing and PR during the project.

Incubators and accelerators

Startups in early stages can also benefit from accelerators and incubators, which are a great way to develop your business financially and strategically. The truth is, these institutions are founded all in order to help startups like yours moving.

While accelerators are great because you can learn the experience of similar companies in them and because of the free marketing and PR, they have challenges too – mostly seen through the plethora of requirements that you should follow, the programs which tend to be selective and the network to which you are connected for life.

Incubators are also great because of the free and low-cost workspace, the access to expertise and influence as well as the unique investment opportunities. However, they often include a rigorous application process, work in an open space environment (which could be difficult for a large team) as well as orientation to specific markets or verticals.

Angel investors/Venture Capitalists

Business angels (angel investors) and venture capitalists (and venture capital firms) are private investors with a high level of income, investing their funds in the development of the company in exchange for a share in it. They are good because they are ready to take on high risks associated with the implementation – as well as bring their startup their invaluable experience.

However, the drawbacks line up to the fact that you should share a business with an angel, you aren’t in full control as well as the option of choosing the wrong angels which may lead you to a “divorce.”

Small business grants/loans

Despite their unique differences, we are categorizing small business grants and small business loans in the same category.

Moreover, a small business grant can be the perfect way for a startup to start and gain benefits thanks to its unique vision. Since they are provided by the government, they also may have some limitations on how you can use the money, when you can use it and in which fields you can use it – all of which are often challenging for startup owners.

Small business loans (or bank loans) are also good for kicking things off and getting financial approval for your business – if you manage to. However, a loan can be risky if you run behind on payment which is why you should consider all of the details associated with it.

All of the investment options listed above require an extra effort from your side and a solid plan to pitch your startup in front of the audience that is potentially interested in it.

Startup Phases

A Final Word About Startup Funding

To sum things up, it is safe to say that one idea is not enough for a startup to thrive. The more you show to the investor, the more likely you will obtain funding for your startup. If the investment is your own, there is nothing to lose (aside from your time and resources).

In the end, you should remember that whatever type of financing you choose for yourself, you should have a return on your investment plan and find a business partner that can help you go “from zero to hero.”

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