Fundraising is inevitable for a startup looking to move to the next level; some of the startup owners start raising funds once the startup idea starts gaining traction, while others focus on generating funds long before the idea becomes a reality. So, if you are looking for the answer to “when to raise funds for your startup” and similar queries, there’s no hard and fast rule for it.
You can start a fundraising campaign anytime; all you need to have is a foolproof business plan with complete feasibility and you are all set to raise funds for your startup. You must have spent some time in the market, researching trends and have a clear picture of your product and how it serves best to an identified set of customers.
So, if you are ready; the first thing you should know is the types of funding that can suit your startup most. It is very important because knowing about various startup funding options can help you take a right decision.
So, what are the available fundraising options for a startup?
Basically, a company can raise funds in two forms, i.e. debt or equity.
Debt Financing for Startups:
Debt financing mainly protects the investor, i.e. it’s more of a loan offered to the startup which is to be repaid with interest within a certain time period.
Banks & SME lending offer a variety of unsecured or secured working capital loans. Moreover, there are a lot of micro-financing firms as well, however, this option comes with a fixed monthly payment and a relatively higher interest rate.
Friends and family can also be a highly reliable and least troublesome source of debt financing. Here is a quick guide on asking friends & family to fund your startup.
Some other debt financing options for startups may include:
It can be fairly easy to secure this kind of funding, and the lender will not be much interested in interfering in your business strategy or decision-making process. However, this is going to be a liability which you must pay even if your business fails and not being able to do so can lead to legal complexities.
Is Equity Funding Good for Startups?
This type of startup funding includes valuation of the idea or the company based on market data and fixing a share price and selling these shares to investors. Since a startup is at the very threshold of the business activity, it’s very difficult to find its real value.
Moreover, equity funding involves a series of legal complexities, so it’s truly not a suitable option for initial fundraising.
Debt Financing seems expensive, and equity is not a right option for bringing in the initial investment; then how do a startup with limited resources should raise funds?
Well, there are a lot of other options which can do great if done rightly. For instance these top 5 options to fund your startup:
1- Angel investment
This is probably the best option for funding a startup at initial stages of business. All you need to have is a highly useful business idea and an impressive pitch. If your product idea solves a real life problem and it’s not in the production yet, even then you can raise huge capital for your startup.
However, you need to pitch the right people; the angel investors normally provide a smaller amount of funding and do not want to get much technical. They invest only if they really like the idea and have a feeling of it being successful. You will certainly be interested in knowing about 1000 Angels, which is a highly targeted angel investor’s network.
2- Business incubators and accelerators
This option can not only provide you with funding resources but these programs also assist startups in building the right connections with mentors, investors and other fellow startups. There are hundreds of business incubators and accelerators out there, however, approaching local ones is the best way to start with.
Here are some of the popular business incubators and accelerators helping businesses in specific industries in different locations:
Under the umbrella of these programs, you can grow your startup faster as you have a hassle free access to tools and training within a network comprised of influential business people.
3- Venture capitalists
Yes, these are the people who will invest a huge amount if they are convinced by business models, valuations and growth trends. Remember, that these are the people who invest with expectations of high returns. So, you must prepare a business plan that investors would love.
Here are a few guides you must follow when you are planning to pitch venture capitalists.
Well, this is one of the very much popular trends today. You can not only generate funds for your business but can also gain traction. This type of fundraising allows you to pool small investments from a big number of investors instead of wasting time with a big company to look for a single investment.
Crowdfunding can help you generate a huge amount of funds, however, the success is subjected to an efficient and highly effective crowdfunding plan.
While planning a crowdfunding campaign, you must also explore all the possible options. Here we have some of the best crowdfunding platforms listed:
5- Business grants
Almost every country’s public sector has a certain amount of funds to support the small business sector. Moreover, there are various private organizations interested in supporting sectors like Science, Research and Development, Technology, Education etc. So, you should find and approach such organizations within your territory and enquire for the available grants or aids. Here is a detailed article on finding and getting the business grants for disabled people in the USA.
The Bottom Line:
I hope this quick introduction to available funding options for a startup will help you to determine which is the best funding method for your startup and when is the best time to raise capital to avoid running out of funds. While you are planning to start a fundraising campaign for your startup, I’ll suggest reading The Art of Startup Fundraising, and it should surely help you in achieving success.