6 Best Ways to Fund your Early Stage Startup

6 Best Ways to Fund your Early Stage Startup

The dream of owning your own business is more possible than ever before. With access to the Internet, you have a potential global audience to market, as well as a global access to potential funding.

Of course, funding your startup is the tricky part.

There are almost too many ways to gather money. Some of them will work, some of them won’t. Some are akin to having your business struck by lightning.

Top 6 Creative Ways to Fund a New Starup

Here are some of the most common ways to fund your startup and how to get started with them.

Method 1: Self-Funding

Self-funding is self-explanatory.

You’re pulling the money to fund your startup from your personal bank accounts, investments, mortgage or any other source of liquid wealth you can come up with.

Pros and Cons

If you’re relatively high income, you’ll have no trouble finding the cash to sink into a business scheme. If you’re lower income and your savings are more important, you might not want to risk your assets on a business that might not see returns for years.

It’s also not a valid funding method for larger business ideas or for those who have very little liquid wealth.

Getting Started

Just go down to your bank and make a withdrawal. If you have the assets to cover it, you’ll be fine dumping them into business investments.

Method 2: Friends and Family

Begging, blood money, borrowing from everyone you know. Your parents, your siblings, your spouse, your children, your friends and their families — anyone is a potential investor.

All you need to do is sell them on you idea and get them to spot you the cash.

Pros and Cons

Some people simply cannot be moved to invest in a business idea, no matter how potentially profitable.

Some don’t have the cash to lend.

Read: Smart Ways to Improve Your Finances in 2015

Some people who want to start a business don’t have the social circles necessary to rake up enough cash. If you can promise cuts of your company profits in exchange, you might do well to ask friends and family, but it’s far from guaranteed.

Getting Started

Pull out your phone and email contacts lists and start asking. Come up with a sales pitch and try to win over everyone you know. Just make sure you’re not alienating them in the process.

Method 3: Loans and Credit Cards

The typical method for someone to invest money in the short term. Banks and credit cards offer a certain amount of money for immediate use on the contract that it is paid back, usually with interest.

Pros and Cons

Business loans are relatively easy to get, and you don’t necessarily need to prove to the bank that your idea has merit. Credit cards don’t care what you spend the money on, as long as you pay them back.

The problem, of course, is paying them back.

Many startup businesses don’t see profits for a year or more, so making an investment that requires immediate repayment isn’t necessarily a good idea.

Getting Started

Talk to your bank about business loans.

Chances are they have a bank manager willing to discuss the risks and loan limits with you. For credit cards, just make your purchases and pay it off later. Just try not to go into debt because of it.

Method 4: Private Investors and Venture Capitalists

Venture capitalists are groups who provide money to fund a new business that cannot support itself. Generally, they are attracted to new and interesting technologies that have a high potential for return.

Pros and Cons

Venture capitalists have a lot of money to throw around. They are used to investing in small companies with no reputation and a high potential for failure.

This means that as a startup you have a reasonable chance of attracting a VC to your side, with the right sales pitch. The problem with a VC is that they typically want a high controlling share in the company.

You won’t be the sole owner, nor will you have absolute control over your company.

Getting Started

Do a lot of research and preparation.

Have a detailed business plan and an itemized breakdown of how much money you need, and for what purposes you need it. Research the venture capital firms that specialize in your industry.

Contact around a dozen venture capital firms and submit business proposals. Keep in touch and request in-person interviews.

Attractive venture capital is a long and complex process that requires tenacity and planning.

Method 5: Angel Investors

Angel investors are similar to venture capitalists, only they represent a single person with wealth to spare rather than a company specializing in investing in new startups. They operate much the same way.

Pros and Cons

Angel investors are much more flexible than VCs, allowing you to run your business and put your innovation to work. On the other hand, they are less likely to take a risk on your company if you can’t sell them on your idea.

Getting Started

Do the same sort of research and planning you would for a venture capitalist, but work on your business as well. Angel investors rarely get involved with companies that don’t already have a working prototype available.

Read: How to Become a Venture Capitalist Today

The more you can demonstrate that your business can succeed, the more likely an angel investor is to lend a hand.

Method 6: Crowdfunding

With the Internet, it is increasingly possible to gain a large amount of funding from a large number of people.

Rather than waiting for a single person — an angel investor — to dump thousands of dollars on your project, you ask thousands of people to donate a couple dozen or a couple hundred dollars to your business.

Usually in exchange you give them inside information, preview versions of products or other perks.

Pros and Cons

Crowdfunding is a new and interesting way to fund a business, but you need a good product and a good sales pitch more than ever.

You need to convince as many people as possible that your product is worth creating, that you are definitely going to succeed as a business and that they can benefit from it when you do.

Most crowdfunding sites allow you to set reward tiers for investors to help attract them. Unfortunately, for these sites, if you set a goal and do not reach it within the time limit, you don’t see a penny.

Getting Started

Visit sites like Fundable or Kickstarter and set up a project. You will want to have a business proposal, an itemized list of the money you need and how it will be used, a video of a prototype and a list of reward tiers.

You’re attracting regular people here, so you need to entice as wide an audience as possible.

Conclusion

Funding a startup is a complex process, and chances are you will want to work on more than one of these options at a time. Gather money from friends and family, pull from your personal accounts and get a quick loan to get off the ground.

Develop a prototype and a business plan, and then advertise to crowdfunding sites and venture capitalists. With luck, perseverance and passion, you can get your startup off the ground in no time.

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