You can be on Entrepreneur’s cover!

The 10 Most Reliable Ways to Fund a Startup Every funding decision is a complex tradeoff between near-term and longer-term costs and paybacks, as well as overall ownership and control.

By Martin Zwilling

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

Pexels

One of the most frequent questions I get as a mentor to entrepreneurs is, "How do I find the money to start my business?" I always answer that there isn't any magic, and contrary to popular myth, nobody is waiting in the wings to throw money at you just because you have a new and exciting business idea.

On the other hand, there are many additional creative options available for starting a business that you might not find when buying a car, home or other major consumer item. If you have the urge to be an entrepreneur, I encourage you to think seriously about each of these, before you zero in on one or two, and get totally discouraged if those don't work for you.

Related: Entrepreneurship Is a High-Stakes Game. Know Your Odds Going In. (Infographic)

Of course, every alternative has advantages and disadvantages, so any given one may not be available or attractive to you. For example, professional investors put great priority on your previous experience in building a business, and they expect to own a portion of the business equity and control for the funds they do provide. These are tough for a first-time entrepreneur.

Thus it is always a question of what you qualify for, and what you are willing to give up, to turn your dream idea into a viable business. Click through the slides to read my list of the 10 most common sources of funding today, in reverse priority sequence, with some rules of thumb to channel your focus:

Seek a bank loan or credit-card line of credit.

In general, this won't happen for a new startup unless you have a good credit history or existing assets that you are willing to put at risk for collateral. In the U.S., you may find that the Small Business Administration (SBA) can get you infusions of cash without normal backup requirements.

Shutterstock.com

Trade equity or services for startup help.

This is most often called bartering your skills or something you have for something you need. An example would be negotiating free office space by agreeing to support the computer systems for all the other office tenants. Another common example is exchanging equity for legal and accounting support.

Shutterstock.com

Negotiate an advance from a strategic partner or customer.

Find a major customer, or a complimentary business, who sees such value in your idea that they are willing to give you an advance on royalty payments to complete your development. Variations on this theme include early licensing or white-labeling agreements.

Shutterstock.com

Join a startup incubator or accelerator.

These organizations, such as Y Combinator, are very popular, and are often associated with major universities, community development organizations or even large companies. Most provide free resources to startups, including office facilities and consulting, but many provide seed funding as well.

Solicit venture capital investors.

These are professional investors, such as Accel Partners, who invest institutional money in qualified startups, usually with a proven business model, ready to scale. They typically look for big opportunities, needing a couple of million dollars or more, with a proven team. Look for a warm introduction to make this work.

Related: How to Create an Elevator Pitch That Will Get You Funded

Shutterstock.com

Apply to local angel investor groups.

Most metropolitan areas have groups of local high net-worth individuals interested in supporting startups, and willing to syndicate amounts up to a million dollars for qualified startups. Use online platforms such as Gust to find them, and local networking to find ones that relate to your industry and passion.

Shutterstock

Start a crowdfunding campaign.

This source of funding, where anyone can participate per the JOBS Act, is exemplified by online sites such as Kickstarter. Here people make online pledges to your startup during a campaign, to pre-buy the product for later delivery, give donations or qualify for a reward, such as a T-shirt.

Request a small-business grant.

These are government funds allocated to support new technologies and important causes, such as education, medicine and social needs. A good place to start looking is Grants.gov, which is a searchable directory of more than 1,000 federal grant programs. The process is long, but it doesn't cost you any equity.

Pitch your needs to friends and family.

As a general rule, professional investors will expect that you have already have commitments from this source to show your credibility. If your friends and family don't believe in you, don't expect outsiders to jump in. This is the primary source of non-personal funds for very early-stage startups.

Shutterstock

Fund your startup yourself.

Costs to start a business are at an all-time low, and more than 90 percent of startups are self-funded (also called bootstrapping). It may take a bit longer to save some money before you start and grow organically, but the advantage is that you don't have to give up any equity or control. Your business is yours alone.\

Related: Anatomy of a Kickstarter Backer

You can see that all of these options require work and commitment on your part, so there is no magic or free money. Every funding decision is a complex tradeoff between near-term and longer-term costs and paybacks, as well as overall ownership and control.

With the many options available, there is no excuse for not living your dream, rather than dreaming about living.

Martin Zwilling

Veteran startup mentor, executive, blogger, author, tech professional, and Angel investor.

Martin Zwilling is the founder and CEO of Startup Professionals, a company that provides products and services to startup founders and small business owners. The author of Do You Have What It Takes to Be an Entrepreneur? and Attracting an Angel, he writes a daily blog for entrepreneurs and dispenses advice on the subject of startups.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Side Hustle

This Dad Started a Side Hustle to Save for His Daughter's College Fund — Then It Earned $1 Million and Caught Apple's Attention

In 2015, Greg Kerr, now owner of Alchemy Merch, was working as musician when he noticed a lucrative opportunity.

Business News

Yes, You Can Buy a Foldable Tiny Home on Amazon — And Now It's Selling for Less Than $12,000

The waterproof and flameproof house was listed around $35,000 a few months ago.

Business News

This One Word Is a Giveaway That You Used ChatGPT to Write an Email, According to an Expert

"Delve" has increased its presence in written work since ChatGPT entered the scene.

Business Ideas

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.

Business News

This Futuristic Wearable Smartphone Alternative Projects a Screen on Your Palm — And It's Now Widely Available

Humane's Ai Pin fastens magnetically to clothing and becomes a voice-activated AI assistant that can make calls, send texts, take notes, and find answers to complex questions.