Budding entrepreneurs are often under the impression that their products and services are good enough to be appreciated by consumers. But, what they usually lack are the requisite resources to get the business up and running.
This makes the project a flop even before it gets started.
If you have a feasible business idea, you should realize that not having money is no excuse for not realizing your idea. There are several creative ways to raise funds for a start-up. Here are six ways a start-up can raise funds.
This article outlines six ways to raise funds for a start-up business.
An entrepreneur may decide to work with what he has in hand. This could be personal finances or the operating revenue of the start-up business. This is what is referred to as bootstrapping.
Bootstrapping may not raise sufficient resources for the business to succeed at a reasonable rate. However, it is one of the most efficient and economical ways to ensure a start-up's positive cash flow. It saves the entrepreneur the burden of loans and interest costs.
In fact, it is advisable to bootstrap in the earlier stages. This helps the business achieve good market validation, making it easier for an entrepreneur to find his path to raising funds.
Here are some bootstrapping tips:
Minimize fixed costs by:
- Sharing office infrastructure
- Delaying capital purchases
- Operating from a business incubator
- Leasing equipment instead of purchasing
- Negotiating terms with suppliers and service providers
Capitalizing on The Crowd
Today, many entrepreneurs across the globe are turning to crowdfunding to raise funds for their start-up businesses. Nesta, the innovation charity, points out that small businesses manage to raise over ?500m through crowdfunding platforms in 2013 alone. Crowd-funding is an excellent way to raise funds from individual investors.
There are a number of crowdfunding sites out there, with the sole aim of helping entrepreneurs receive loads of small donations from ordinary citizens. These donations eventually add up to sufficient funds to finance a start-up or expand an existing business.
Sites like Seedrs allow investors to purchase an equity stake in ventures looking for funds. The business gets the requisite funds while the investors hope to make a profit on their stake when the business becomes successful.
Conversely, sites like Kickstarter allow entrepreneurs to simply ask for contributions towards the business start-up costs. There is normally no financial return for contributors in this case. There are other crowdfunding sites, such as Funding Circle, which allows investors to provide short-term loans to entrepreneurs. The loans come with interest rates agreed upon during the fund-raising process.
An entrepreneur with no funds can start by looking for angel investors for their new business. These investors offer financial support at the initial stages of a business. They are basically affluent entrepreneurs, who have made their fortune in various industries. They are now looking to plough back their resources into start-up businesses.
World's most leading businesses started with angel investors. Google and Facebook are good examples. The good thing with angel investors is that they come with much more than just money to the business. They also have valuable networks and business experience.
So besides getting funds, an entrepreneur will also get beneficial advice as well as the privilege of being connected to banks and other investors. There are reputable Angel networks, like Golden Seeds, which focus on connecting entrepreneurs to angel investors.
An entrepreneur with a start-up business that has a high potential to grow in future can turn to venture capitalists. Venture capitalists focus on funding such businesses. They normally come in when a venture has grown beyond the innocent start-up stage and is already generating some revenue.
Venture capitalists usually receive equity in the business in exchange for their funding. However, some investors may ask for both equity and debt financing. Besides financial support, they also come with extensive industry experience and expertise.
These investors can pump huge amounts of funds into a business. However, this will depend on several factors, such as:
- The business model
- Business valuation
- Growth trends.
There are banks that are friendly to start-ups and small businesses. These banks offer credit facilities and overdrafts to ventures that meet their lending requirements, such as a good credit record.
To get funding from banks, an entrepreneur needs to have a well-written business plan. The business plan should include clear financial projections. Fortunately, some banks help start-up businesses draw financial projections.
Other banks offer incentives geared towards helping entrepreneurs reduce the cost of running their start-ups. These include:
- Personalized business advice
- Free business banking for a certain period
For a new business, it is normally difficult to secure a bank loan. That's where bridging loans come in handy. These are a special kind of short-term loans, which are usually easier and quicker to acquire when compared to most conventional loans.
Bridging loans can cover the financing of business infrastructure, like offices and machinery, as well as other start-up costs like insurance premiums and tax bills. There are organizations that specialize in these types of loans. They focus on providing funds to start-up businesses that would otherwise have no access to funding.
An entrepreneur with a business idea but no funds can team up with a business-minded fellow and pull together funds. Most successful businesses today are products of business partnerships.
When choosing a business partner, however, an entrepreneur should ensure the alignment of goals. A difference of opinion could spell doom for the business. The parties concerned need to have a common business goal. It is also advisable to include a buyout clause in the partnership contract since the future is unpredictable.
Budding entrepreneurs face several challenges when starting up. The most formidable of these is the challenge to raise capital for a start-up business. Once a business concept is finalized on paper, funds are required to realize it. The aforementioned are some of the best ways to raise funds for a start-up business. However, it is imperative that entrepreneurs explore each funding method comprehensively before making a decision.