7 Fantastic Ways to Fund Your Next Billion-Dollar Idea
Here's what you need to know when you're ready to launch your big business venture.
Starting your own business has its ups and downs, and any business owner will tell you it's not for the faint of heart. But, here you are with this incredible, billion-dollar idea, and all that's on your mind is, "How can I get started?" The short answer is that you probably need some money. Website design alone can cost thousands. And depending on the type of company you want to launch, you may need to hire an entire team.
Whether you've come up with a potentially groundbreaking new app or want to launch your own line of apparel, you probably need some cash to get started. So, how do you go about getting funding for your business idea? Well, there are a few different ways to secure some cash flow, and it starts with digging into your own finances.
1. Get started with bootstrapping
"Bootstrapping" is the term used by business owners that refers to building a company from the ground up with nothing but personal savings and cash coming in from initial sales. It involves very little — if any — funding from external sources. Bootstrapping includes pulling from your savings account and using credit cards and any home equity lines you may have.
Bootstrapping is excellent for a plethora of reasons, but it's mainly a way to kick off your business plans without drowning yourself in loan debt before your business even has a chance to get off the ground. In addition, you aren't giving away any equity just yet, which is a huge plus for any business owner. That said, if you're looking to scale quickly, you will probably need to bring in outside funding sources.
Related: 10 Ways to Fund Your Small Business
2. Family, friends and crowdsourcing
Reaching out to family and friends for money can feel like a pretty daunting move, but their support can help get you started. You may not be able to secure a ton of funding this way, but every little bit helps when you're stuck. But, before you ask your loved ones for help, you should have a business plan ready. You should be able to explain to everyone what you're looking to accomplish, how you'll be profitable and whether you are asking them for a loan, investment or gift.
Crowdsourcing, or crowdfunding, allows you to tap into the power of the internet to raise money for your small business. Family, friends and complete strangers can give cash donations to your cause, often in exchange for company assets in the form of rewards or equity. It also helps you get your idea out to a broader group of potential investors while creating a bit of a buzz among potential customers.
3. Look to your community
For those looking to launch a small business, check out your local small-business development center. These organizations can help connect you with other entrepreneurs for networking, help you determine what type of loans and funding you may qualify for, and they can also help you apply. In addition, many large cities have programs solely dedicated to bringing businesses into the local community.
4. Bank loans
Potentially hefty interest rates keep many business owners from turning to a bank for a loan, and that's perfectly understandable. But many large banks, such as Bank of America and Wells Fargo, have programs dedicated to small-business owners. First, you'll need to have a business plan outlining how you'll use the funds so the bank can assess the risk involved in lending to your business. But once you do have the funding, you'll have more flexibility in changing your plans without any intervention from the bank. All they really care about is that you repay the loan.
A bank loan's main advantage is that you retain total equity while receiving a nice chunk of change to get your business idea up and running. But, you need to pay back the loan plus interest, or you can leave yourself vulnerable to bankruptcy.
5. Microfinacing options
Banks aren't exactly known for their empathy and understanding of hardships. For instance, if you've been deemed high-risk and turned down by Bank of America due to a poor credit score or track record, your reasons for being in a particular financial situation will likely fall on deaf ears.
But small-scale entrepreneurs can access capital through microfinance, which is an especially good option for people with bad credit scores. Microfinance institutions (such as non-banking financial institutions) are more willing to give loans to those typically deemed high-risk by traditional banks. That said, these loans generally are more modest in size, hence the name "microfinancing."
6. Seek out angel investors
Angel investors are typically established business professionals with high net worths looking to invest in promising startups. You can start your hunt for an angel investor by asking other entrepreneurs in your network or checking out the Angel Capital Association, which boasts over 300 angel investor groups. AngelList Venture is another source for connecting entrepreneurs with interested investors and has helped over a thousand startups secure funding.
The challenge here is convincing angel investors that your business is worthy of their money. There are many startups out there, and they all promise their business is going to be huge. But, if you can find an angel investor, you're not just getting their cash. An angel investor can also provide valuable mentorship and insights. Most have either launched successful businesses or have worked with other startups and have the experience you may lack.
7. VC funding
Venture capital (VC) is a form of equity financing for businesses and startups that anticipate high growth and therefore need a good chunk of change to keep this growth sustainable. If you're looking for funding of at least $1 million, you'll need to turn to venture capital. VCs typically invest in several different companies, meaning yours will have to stand out in the crowd. They also look for a pretty high return for their investment, so you should absolutely have an exit strategy in mind. And in order to even be considered, your business model needs to be air-tight and ready to scale.
When it comes to securing any type of loan or funding, you need to do your due diligence and thoroughly research every single option. A combination of funding may be best for you, but the most important thing here is to choose an option that works best for your unique situation.
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