It is only natural to lose sleep thinking of how to fund your new start-up. But there are ways to finance your business that you can consider exploring. Lack of funds is one of the biggest reasons for businesses collapsing within a year of their take-off. Having access to a steady flow of funds is imperative at every stage of growth and entrepreneurs are likely to face this issue from time to time. How much money you need will of course depend on the kind of business you own.
- Boot-strapping: One easy way to grow and finance your company is by boots-strapping or self-funding. This is because, as a first-time entrepreneur, finding people keen to invest in your business may be a challenge. So, the best option is to use your savings or get family members and close friends to contribute. The advantage of boost-strapping is that you will be attached to the start-up no matter what the teething issues since it is your money. Investors will see this as a good reason to invest later on. But boot-strapping works when the initial capital requirement is less.
- Crowdfunding: This is slowly growing into one of the best ways of financing start-ups. It is similar to asking for loan from multiple contributors. For this, you need to explain your business operations in-depth on a crowdfunding platform. You must state the goals, plans for profit generation, and amount of capital you need. Consumers then invest if they are satisfied with this proposal. The best part about crowdfunding is that it helps to market the product besides getting funds for it. You can find out in advance if people have any interest in what you have to offer in the first place. No brokers or professional investors are involved; common people invest in a start-up.
- Angel Investment: Angel investors refer to people having surplus cash coupled with an interest to put money into new businesses. These investors examine the proposal and even offer advice. This has led to creation of companies like Yahoo and Google. The downside is that the amount of capital invested will be less than what venture capitalists can offer.
- Venture Capital: These people are the biggest investors and venture capitals are the professionally-handled funds investing in businesses showing immense potential. They can offer mentorship, expertise, and evaluate the company in terms of both scalability or growth and sustainability. This may be a goof financing option for a business that has survived beyond the start-up stage and has begun producing profits. For instance, companies like Uber having exit strategies can get millions invested from VCs for growing their businesses. The only downside is that VCs are keen to get back their investments within 5 years; so, if a business has a product that takes more time to capture the market, the VCs may lose their interest and back out.
- Business Incubators: Businesses that are just starting out can consider accelerator or incubator programs for funds. Such programs are meant for helping out start-ups. While incubators nurture the business with tools and training help, accelerators provide the impetus to take bigger steps. Companies like Airbnb and Dropbox had begun with accelerators.
- Bank Loans: You can always reach out to banks for financing. You could get funding or working capital loans. Alternately, you could get business loans from NBFCs or micro-finance providers. Micro-financing works for people who lack access to traditional banking services.