Eight Ways to Fund Your Start-Up
Eight Ways to Fund Your Start-Up
You have a
great concept. You've developed your business plan. Everything is set, except
for one thing.
Funding your
start-up
There are
several ways to fund a start-up that involve varying degrees of risk and
effort. When choosing a path, it is important to know your options and evaluate
which one is most suited to your needs and tolerance for risk.
To help you
get started, here are eight possible sources of capital to fund a start-up
business.
1. Fund it
yourself
Most
start-ups, at least in the beginning, are self-financed. This may involve using
your savings, borrowing against a retirement account, or taking out a
home-equity loan. This is a good thing if your venture succeeds, as you retain
all of the ownership. But if things don't go so well, you must consider and
weigh the risks you're taking.
2. Friends
and family
People
closest to you may be a good source of initial start-up funding. After all,
they already know you, your background, and your integrity. They may be less
concerned about your business plan and more willing to invest or lend based on
the strength of your character.
But there
are risks that are different than from other funding sources. Personal
relationships can be at stake if problems or misunderstandings arise.
3. Initiate
a crowd-funding campaign
In
crowd-funding campaigns, anyone can make online pledges to help fund your
start-up. This usually involves pre-ordering a product, or receiving rewards.
This is an innovative way to fund a smaller start-up.
4. Join a
start-up incubator group
What is an
incubator group? An incubator group is a start-up accelerator often associated
with universities or large organizations. Their purpose is to spur innovation.
Most provide access to resources such as office space, but some also provide
seed funding.
5. Apply for
a small business grant
There are
lots of untapped government grants out there. Seek them out and you could
potentially walk away with a safe and reliable source of money for your
start-up.
6. Apply for
a line of credit or loan
If your
tolerance for risk is low, talk to your bank or credit union about applying for
a low-fee line of credit or personal loan. Your banker may also be able to help
you with an SBA loan.
Keep in
mind, though, you will have to make monthly payments right off the bat.
7. Seek help
from angel investors
Most cities
have groups of high-net-worth individuals who are looking to invest in
interesting business opportunities in their communities. If you've seen the
television program, "Shark Tank," these are examples of angel
investors. They often want to see at least some track record of success, but
some will entertain start-ups. The downside is that you may be giving up a
considerable stake—often 10 to 50 percent—of your company for the angel
funding. On the other hand, you may gain valuable expertise and contacts from
someone who is motivated to help your venture succeed.
8. Go after
venture capital investors
Venture
capital investors are professional investors who look for big ideas. For the
majority of new start-ups, this isn't a viable alternative, as VCs fund only
about one or two percent of all business plans they review. But for those with
the right combination of concept and team resumes - usually worth a few million
dollars and supported by a team of proven individuals - they can be a great
resource. VCs can scale capital needs quickly for fast-growing companies.
One Critical
Piece of Advice
Whatever path
you choose to take to finance your business, it's critical that you have a
professional-looking presentation.
Source: SmartDraw
