What sources of financing are available for your startup business?
Startups cost money to get off the ground, build, and grow. Fortunately, there are a wide array of potential financing sources for new startup businesses. You may even stack them on top of each other as you grow.
Check out this list and find those that best fit your venture...
Personal Savings
It may not be the most attractive option if you were dreaming of raising millions from VCs, but it can make a lot of sense. If you begin by self-funding the first few steps of your startup you'll have less pressure, more control of your business, and fewer distractions. Besides, there isn't anything better to invest in than yourself.
The further you are along in your business before you raise outside money, the more credibility and negotiating power you may have. This may come from savings and stock accounts, retirement funds, or even retirement and job buyouts when your employer is looking to pay people to leave.
Personal Credit
Many great startups have been launched using personal credit. If you don't have a lot of savings, but you have available credit or a good credit score, you may have access to a lot of working capital, even with 0% interest. This can be some of the cheapest money you can get.
There is wisdom in separating your personal and business finances, but many start this way. It can give you a lot more flexibility when starting. You can just get to work on building the company and gaining customers, instead of being sidetracked by the fundraising process or applying for loans.
Friends & Family
Your friends and family are the easiest investors you'll ever close. They already know you, like you, and trust you. They want you to do well. In turn, if you are really onto a successful business, then you want them to be able to share in those rewards too.
This may be done as a personal loan, partnership, or joining you as cofounders. Just make sure you still put everything in writing and create a path for a clean separation if things don't go as planned. Be sure you are all placing your relationships above the business, and remember to unplug from work and still enjoy each other's company without having every conversation be about the business.
Grants & Competitions
There are also many business grants and business plan competitions to explore. They come with many benefits. Especially that you don't have to give up equity and control in your company or commit to the baggage of loan repayments.
There are federal, state, and local business grants. This requires filling out an application and following up, but you generally don't have to pay the money back. Many schools and organizations run business plan competitions to spur and invest in innovation. Having these sources of funds is also great for your credibility, and can help you bring in additional supporters.
Business Loans & Lines Of Credit
There are many sources of business loans and lines of credit. They can range from new online lenders to peer to peer lending sites, and brokers and banks. Some are willing to support new entities. Others want to see that a company has been registered for at least two years. These lines of credit can run anywhere from $10,000 to $250,000. They can be based on the business itself, established income streams and receivables, or the credit standing of the business and principles. Repayments may be fixed or based on a portion of incoming cash flow.
Angel Investors
After friends and family, the next step for most startups in terms of equity fundraising is typically angel investors. These can be individual angels or more established angel groups. Many angels also invest through startup accelerators and incubators.
Angel investors put in the first and smallest checks for early-stage startups which don't yet qualify for more serious institutional capital. They can typically help you through your pre-seed, seed, and even, Series A round.
Angel investors, as well as venture capital firms, will expect you to become a great storyteller. For this, you will need to capture the essence of your business in 15 to 20 slides. In order to kickstart things, you might want to get a hold of the best pitch deck template to get things in motion.
Venture Capital Firms
Venture capital firms come into play with bigger funding amounts than angel investors. They are professional investment firms, looking for opportunities to 100x their money in very fast-growing startups that can go really huge. In addition to the money, VC funds can bring a huge amount of help from resources and talent to connections and insights on how to go big fast.
They'll provide capital in exchange for an equity position in your company, and often a seat on your board. The later you bring them into the picture, typically the lower the percentage of equity they'll get in exchange for their money.
Additional Startup Financing Sources For Your Business
In addition to the above, you may also encounter family offices, private equity firms, and strategic corporate investors. They all have their place in providing capital to help grow your business and provide liquidity as you take it to the next level.
Your Customers
Your customers can be one of the best ways to finance your business. There are several ways this can happen. One is just buying from you. Even if it is a pre-order situation. This not only fuels your company with cash, but it also proves demand for your product and begins to build relationships and a referral network out of the gate. There are now many third parties which will finance your customers too. If you have a big-ticket item, this gives you cash now, and allows them the luxury of time to pay. If you really wow your customers in early presentations, they will often also literally want to invest in your company too. That's some of the best proof and money you can hope to get.
BIO
Alejandro Cremades is a serial entrepreneur and the author of The Art of Startup Fundraising. With a foreword by 'Shark Tank' star Barbara Corcoran, and published by John Wiley & Sons, the book was named one of the best books for entrepreneurs. The book offers a step-by-step guide to today's way of raising money for entrepreneurs.
Most recently, Alejandro built and exited CoFoundersLab which is one of the largest communities of founders online.
Prior to CoFoundersLab, Alejandro worked as a lawyer at King & Spalding where he was involved in one of the biggest investment arbitration cases in history ($113 billion at stake).
Alejandro is an active speaker and has given guest lectures at the Wharton School of Business, Columbia Business School, and at NYU Stern School of Business.
Alejandro has been involved with the JOBS Act since inception and was invited to the White House and the US House of Representatives to provide his stands on the new regulatory changes concerning fundraising online.
