# Startups
10 Top Sources for Startup Funding
Red Rocket TeamSep 18, 20247 min read
In This Article
Personal Savings Friends and Family Angel Investors Venture Capital Crowdfunding Incubators and Accelerators Grants and Competitions Bank Loans and Credit Corporate Partnerships Revenue-Based Financing Final thoughtsCreating the own business is a dream of many people today, as it is a great solution to depend only on yourself and earn more. This is also evidenced by recent statistics where experts counted about 590 million entrepreneurs of different sizes in the world. However, for many, the business ends before it even starts because most entrepreneurs do not have the money to start.
It takes a lot of money to turn an idea into a real business or scale a startup into a stable company. Sometimes, your savings are not enough for this, and that's why investments can help you. Investment is not an aim but a tool. To get funding, a startup founder must have a good idea of what exactly he or she needs the money for. Some investors are looking for projects to fund in order to receive dividends in the future. As practice shows, there are quite a few ways to find startup funding. This article will tell you about ten sources for company funding.
1. Personal Savings
Obviously, when you are planning a new project, the first question you should answer is how much money I need to make this startup a success. Once you know your budget, consider whether you have enough personal savings. If you don't have enough personal funds and your startup can wait for some time, you can focus on working to raise the full amount for startup capital. Is this the best way to launch your own project? It's hard to say, as utilizing personal savings can affect you in different ways. For example, the thought of investing the personal money that you have been saving for a long time can motivate you to work hard and responsibly.
2. Friends and Family
When you realize you don't have enough personal savings for startup capital, you start looking for people who can potentially lend you money. Naturally, people think of their loved ones first, including family members or friends. If you are on good terms with the person, you can negotiate a loan with no interest charges and a long repayment period. However, money often spoils relationships between loved ones.
Call contacts in the phone book, and tell friends and relatives about the business idea. The more you talk about the startup, the higher the chances of finding an investor. However, always separate the personal from the professional. Before accepting money from your loved ones, make sure they are willing to share your risks.
3. Angel Investors
The business angels (angel investors) are independent investors who are able to invest in a company while it is still at the idea stage. In other words, at a time when it is pointless to approach any venture capital fund or bank in search of a loan. Usually, business angels are former entrepreneurs who have made a lot of money from their business and invest it in young companies, with the aim of making a profit by selling their share in the future. Moreover, they not only want to make money but also help young entrepreneurs to self-actualize themselves in the business industry.
They give startups not only financial but also expert support. Business angels often become full-fledged mentors for projects and share their experience, and in exchange, they get a share in the company. To get in touch with business angels, use contacts from official community websites or write to them on social networks. AngelList and SeedInvest are among the popular platforms on which you can find angel investors.
4. Venture Capital
When we talk about venture capital financing, it always means risks for investors. Venture capital funds focus on innovative projects and companies. Venture capital funds are different from all other funds because they invest in securities with a high probability of risk.
According to a study, 9 out of 10 startups fail and only one makes a big profit and recoups all losses. Surprisingly, many famous projects that each of us knows about today became successful thanks to the support of venture capital funds. You can present your project at events organized by venture capital funds. Another option is to send your business idea to the contacts on the foundations' websites. For example, among the current venture capital funds where you can find investments are such popular sites as Google Ventures and Intel Capital.
5. Crowdfunding
Crowdfunding is the collective financing of various projects. With its help, aspiring start-ups raise money from many individuals through special crowdfunding platforms. All they need to do is develop an investment proposal, publish it on one of the platforms, and start raising money. However, before you use equity crowdfunding platforms, you should know about their varieties.
- Equity crowdfunding. People who invest in a company become co-owners of the company. Founders typically cannot rely entirely on this type of financing and usually raise most of the funds from a lead investor first.
- Rewards-based crowdfunding. Sponsors are offered non-financial exclusive perks. For example, merchandise and access to the product before its launch. The second is beneficial to funders - this way they get early feedback on the product.
- Crowdlending. A startup borrows money at interest through a P2P lending platform. This money can be tied up in assets and needs to be paid back by a certain date.
In general, this is a great way to raise the necessary capital to fully launch a business. However, you must have the right way to show your product to people and get their attention.
6. Incubators and Accelerators
You can find an investor through business incubators - organizations created to support startups. They help businesses with office rent, provide access to equipment and databases, advise on taxation and legal issues, and, most importantly, provide links with partners and investors. They differ from business angels in that they do not invest their own money in projects.
Gas pedals, just like incubators, specialize in developing startups and attracting investments. They differ in that they support already stable projects and help start-ups to scale up. Usually, such programs take three to six months. Then a demo day is held, where the project is presented to investors.
Each accelerator/incubator offers its own program, selects mentors and experts. The program also provides for experience exchange and networking. And there are certain deliverables for startups that must be fulfilled.
7. Grants and Competitions
Gratuitous investment is a coveted prize for any startup. To get it, you need to choose a competition organizer, send an application, and be selected. This is a type of funding that does not lead to dilution of shares, i.e. the recipient of funds does not have to give up a stake in the company. It is a common option in the BioTech and HealthTech sectors, as well as among other science startups and those solving important global problems.
These sectors are suitable for grant funding because they can accelerate key research and development. For example, if your startup is developing a new drug for a deadly disease, you stand a good chance of receiving a non-recurring investment.
8. Bank Loans and Credit
Another option considered by many aspiring entrepreneurs who do not have their own savings is the help of banking institutions. Most major banks offer business loans for entrepreneurs. However, it can be difficult for startups in the very early stages to get this funding as they cannot always prove that their business model will work and are therefore considered higher risk.
Another form of investment that many banks around the world offer is a convertible loan. This is a type of financing where a startup takes out a loan which, if not repaid on time, turns into equity. This option suits founders who need money in the near future, but do not want to give away a stake in the company and believe that it will soon start generating revenue. In general, cooperation with banking institutions has both its drawbacks and its benefits.
9. Corporate Partnerships
You can look for investors anywhere if you need to get money for startup capital. For example, they can be not only your friends, banks, or private investors but also your corporate partners. Imagine that you partner with a firm that is already in operation and has revenues. This means that such a company has the opportunity to help you with your startup. Of course, you must agree on a scheme of how your partners will benefit. For example, it could be a gradual repayment of debt or part of the shares of your company. Moreover, you can offer them other things, including your services, further PR, and more.
The most important thing is to convince your partners that investing in your startup is beneficial for them. Try making a B2B presentation to showcase all the important information and projections about the firm's profit figures. Is this a good way to do it or not? See the table below to see if this method of attracting startup investment is right for you.
10. Revenue-Based Financing
Any new business owner would like to get an investment and pay it back as income is earned. This option exists and it is called revenue-based financing. Technically, it is a loan that the company repays by paying a percentage of its future gross income over a certain period of time. Unlike a bank loan, this approach does not require assets as collateral.
In terms of the level of involvement, such sponsors are often considered the "golden mean" between bank lenders and private investors. this option is only suitable for startups that generate regular revenue. In addition, it can be challenging for companies that are cash-strapped or need all the money they earn to allocate monthly payments.
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Final thoughts
As you might have realized, there are quite a few investors and firms today that would like to invest in small projects. Why is that so? For them, small projects have great potential, as they do not require large investments, but they can grow tenfold in the near future. A business startup is like a small seed that can turn into a big plant that can give a large harvest.
Which way should you choose in order to fully raise startup capital? This is probably a question that can't be answered in one unique way. Of course, it is best if you have personal savings. In this case, you do not owe money to anyone and your company is 100% yours. However, if your money is still insufficient to launch your business, you can turn to venture capital funds or crowdfunding sites. In general, use any available method to get funding for startup.
