Capital is the driving force for any startup to thrive. Without funding, businesses would fail to launch or pass the opportunity to catapult to higher levels.
However, getting the funding you need is not a straightforward task. One thing you should note is that a startup can raise money in two ways: debt or equity. If you’re unsure of the next steps to funding your business, LegalVision NZ lawyers help provide structure and seasoned advice on your specific startup needs.
Here are some comprehensive tips on how to raise money to bring your start-up to the next level.
If your business appeals to a broad audience, crowdfunding is one way of acquiring a trickle of capital. How it works is you gain small to medium-sized amounts of capital from a large number of people to help finance your startup. With the ease of accessibility of crowdfunding sites and social media, investors and entrepreneurs can find themselves kicking off and building strong relationships on these networks. You might even stumble upon a venture capitalist or angel investor in one of these sites. And should they invest, these high net-worth individuals would exponentially grow the size of your business than your average crowd funder.
Find angel investors or a venture capital firm
As we explain in our guide on how to become an angel investor, angel investors are highly affluent people with large net worths. They mainly provide financial support for budding startups and entrepreneurs looking to take their business to new heights. These people can support you with a one-time lump-sum cash fund, or give you money in an ongoing injection to provide support and financial protection.
The reason they help fund startups is to foster economic growth through innovation. If your startup has exemplary goals, or if you as an entrepreneurial character look particularly promising, they’d be willing to set aside a part of their capital to fund your business. They’re not all charities, however. They’d usually ask for a certain percentage of equity for your company in exchange for their funding.
Venture capital firms and in the UK; venture capital trusts may also offer seed or other equity funding in exchange for a stake in fast-growth businesses. Venture capitalists specialise in choosing the best projects to back, with the aim of riding a wave of success from a few of their lucky choices. Compared to private equity firms, VC firms tend to take smaller stakes and aren’t as actively involved in the management of the businesses they invest in. Whereas a private equity house or angel investor may expect to be given a seat on the board of directors as part of the investment deal.
An incubator firm or business accelerator are business organisations that engage in helping early-stage businesses grow and prosper in the market. These organisations tend to have locations across many prosperous economic centres across the globe.
These incubators offer not just financial capital, but also support businesses by providing office spaces, education, administrative functions, idea generation, and connections with the right investors. All these come to aid you through cost-cutting measures. They tend to get a portion of the startup’s capital or a stake in their business as their fee, and their service lasts anywhere between a few months to several years.
Get a Loan from Banks or Financial Institutions
Loans are another way to raise funding for your business. To get a bank loan as a business entity, there are some steps you have to take in order to get a chance for approval. Here are some things to bear in mind to prepare you before asking for a bank loan:
- Have a proper business plan set up
- Give them a rundown of how you plan to use your finances
- Tell them the amount that you’ll need for your business
- Make sure you have a good credit score
- Know all your other lending options
- Keep a record of all your financial inflows and outflows
Make sure that your financial budgets are sound and promising. If it is, you could even get a large capital from these institutions. But be sure to have the ability to pay it back as well; having your credit score besmirched can cause trouble in the future.
Government Programmes that Offer Start-up Capital
Some government programmes happily offer capital through grants for your startups. Though, bear in mind that these programmes typically have arduously long processing times. But for those patient and lucky enough to score a government grant – the payoff would be worth the wait.
One such government programme is the Entrepreneur’s Programme. This programme aims to help businesses increase competitiveness and impact on the market with more than just funding. It also gives you access to a wide, Australia-wide network of private-sector facilitators and advisors with a plethora of experience and wisdom for free. They offer funding support for incubators that assist startups looking to enter international waters too.
That’s not all the government grants out there. In Australia, there are also the CSIRO Kick-Start, Biomedical Translation Fund, Export Market Development Grant, and the Research and Development Tax Incentive. In the UK, this site will help you locate pots of cash that might be available for your business to tap into.
The last type of funding is the quickest and perhaps most reliable type of funding: sourcing capital from your own savings account.
This isn’t limited to just your savings, physical assets, and personal debt. Many serial entrepreneurs with successful businesses have enough capital circulating around their businesses that can be put to good use for other ventures. While the capital range can be enormous depending on your net worth, you can generate the quickest amount of capital from getting your sources from your own bank.
If you work with a co-founder, you could even consult with them and discuss methods of splitting the capital if you feel it’s warranted.
To learn more about raising finance as a business you might be interested in the following book pages:
- The best venture capital books
- The best private equity books
- The best project finance books
- The best corporate finance textbooks
Remember, raising finance might be as simple as connecting with a friend and tapping them for a small sum in exchange for a couple of shares in your business. It could involve asking a syndicate of professional investors for a multi-million pound injection of cash. In a discipline with such differences in scale, it pays to seek out professional advice to ensure that you connect with the best sources of capital, at the lowest cost, and give up the least equity possible.