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Planning to start a business? Wondering how do startups get funding? Here are the 6 startup funding options.
Launching your own business can be both exciting and stressful at the same time. Whether it is a home-based business or any other type of startup venture, you need capital investment to begin with.
The startup industry is fast-growing worldwide with an increasing number of entrepreneurs across different industries. More and more people are coming forward with innovative business ideas and products resulting in new startup ventures. Small businesses are the future of tomorrow as they can drive economic growth and result in new career opportunities.
According to the U.S. Small Business Association (SBA), there are 31.7 million small businesses in America, which account for 99.9% of all U.S. firms.
So are you curious to know how to do fundraising for startup? What are the types of funding for startups?
When it comes to types of startup funding, there are a lot of options to consider. To make it simple for you, here we are discussing about 6 ways to find startup funding for small businesses.
Let’s explore more about these startup funding sources in detail.
1. Self-financing or bootstrapping
Funding your business using personal savings or by borrowing from family or friends is known as bootstrapping or self-financing.
Self-financing or investing your own savings is the best funding option for first-time entrepreneurs. Several big businesses were once started small with personal investments. Moreover, self-financing is safer than any other type of business funding as it doesn’t involve any third parties.
Later on, if your business expands and needs more capital, you can opt for other funding sources like business loans, angel investors, etc. If you are wondering how to start a business without money, borrowing funds from family or close relatives can also be another good personal financing option.
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2. Find an angel investor
Angel investors are high-net-worth individuals who invest during the initial phases of a business or seed the funding stage. As they support small businesses when most other investors are not ready to take risks, they are called ‘angels’. Angel investors are also called informal investors, business angels, angel funders, or seed investors. Some angel investors invest through online crowdfunding platforms or form angel investor networks to pool funds.
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Funding angel investors can be easy when you have good networking skills. Sometimes you can even find an angel investor among your close connections. There are many online platforms like Angel Investment Network, AngelList, Angel Capital Association, etc. that connect entrepreneurs with angel investors. You can also find them via social media platforms, startup events, etc.
3. Look out for crowdfunding
Crowdfunding is one of the fastest and safest sources to get funding for startups.
The Crowdfunding market was estimated to be worth roughly USD 17.39 Billion in 2021 and is expected to reach USD 43.48 Billion by 2028.
During the COVID-19 pandemic, the crowdfunding market witnessed rapid growth, especially for donations and community fundraising. For example, Facebook had launched a fundraiser campaign for charity initiatives. One of the main advantages of crowdfunding is the unlimited funding limit.
Various companies such as Kickstarter, Crowdfunder Inc., Indiegogo, Patreon, GoFundMe Inc., etc. offer online crowdfunding platforms to raise funds for businesses.
4. Get venture capital
Venture capitalists invest in new and medium-sized businesses that are most likely to gain massive profits in the future. VCs aim to fund companies with a potential worth of $100 million or more within a few years. Successful startups like Facebook, WhatsApp, Uber, etc. have been supported by venture capital firms.
Venture capital funding is ideal for businesses that are beyond the startup stage and those that require a higher amount of capital funding for expansion. VCs usually conduct a lengthy and detailed analysis of the business venture before they invest their funds. So it may take several months to process the funding approval.
You can find Venture capitalists through websites or by attending startup events.
5. Incubators / Accelerators
Startup incubators offer workspaces, funding, telecommunication facilities, business guidance, and many other shared services for new businesses. Startups in the early stage can get seed investment and access to a big network of mentors consisting of business consultants, industry experts, financial advisors, venture capitalists, etc.
Incubators are established by government organizations, universities, industrial groups, or companies. In exchange for the services provided, the incubators and accelerators may ask for an equity stake.
Business accelerators are different from incubators, but both share some common characteristics. Accelerators usually provide professional advice and business guidance for startup firms. Incubators aim to incubate businesses in the early stage by helping them turn their ideas into successful businesses. Accelerators help to accelerate established startups by providing them with structure guidance.
6. Apply for loans
Another common startup funding for businesses is loans offered by banks and financial institutions. If you have a good credit score and bank balance then you can apply for a personal loan. You will need to share a well-structured business plan with the lender to get loan approvals.
For example, in the US, Small Business Administration (SBA) acts as a mediator between lenders and small business owners to facilitate loan processing. SBA aims to support small businesses by ensuring fair loan terms.
Entrepreneurs can also acquire startup business loans from microfinance firms or NBFCs (Non-Banking Financial Companies). Microfinance firms aim to provide capital for small businesses that fail to get capital via conventional bank loans.
Conclusion
We hope this guide has helped you gain a good understanding of the common startup funding sources. Now you can see which one best suits your needs and go for it.
Among others, self-funding is the safest and preferred funding method to kick off your business. However, it is always best to diversify your funding sources to gain more stability in the long run.
