So, you have an excellent idea for your business; what’s the next step? There is not a one-size-fits-all answer to this question, as the next step depends on the specific business idea and the entrepreneur’s goals. However, some common next steps include researching the industry, developing a business plan, and raise funding.
Let’s assume you’ve already done the industry research and developed your business plan. This leaves us with raising funds to fulfill your entrepreneurial goals.
Ways to Raise Funding for your Startup:
- SEED MONEY
- ANGEL INVESTORS
- VENTURE CAPITALISTS
- INITIAL PUBLIC OFFERING (IPO)
- DEBT FINANCING
- EQUITY EXCHANGE
- INCUBATORS& ACCELERATORS
There are several ways to overcome the lack of funding for a business startup. One way is to look for alternative funding sources, such as grants or loans from family and friends. Another way is to bootstrap your business by starting with a small amount of money and reinvesting your profits back into the business.
There are seven basic categories for startup business funding:
1: Seed money
This is the initial funding that a startup business needs to get off the ground. It typically comes from the founder’s savings, friends, and family.
How much money in seed capital is enough for your new business venture? This is another question that there is no single answer to, as it depends on the specific business and its financial needs. However, generally, it is recommended that new ventures have a minimum of three to six months of operating expenses saved up in seed capital. These allocated resources will help ensure that the company has enough money to cover its costs and maintain its operations during the early stages of growth.
2: Angel investors
These individuals invest their own money in early-stage companies in exchange for equity.
How can I find angel investors willing to invest in my new business? There are a few ways to find angel investors. One is to attend startup events and pitch competitions. This approach will allow you to meet and network with potential investors. Another way is to search online for angel investor directories. These can be a great way to find local investors interested in your business. Finally, you can reach out to your network of friends, family, and acquaintances to see if anyone knows of any potential investors.
3: Venture capitalists
Venture capitalists are professional investors who invest other people’s money in high-growth companies in exchange for equity.
How can I find a venture capitalist wanting to invest in my new business? There are a few ways to find venture capitalists to invest in your new business. You can search online for venture capitalists, attend business events where venture capitalists are present, or work with a business incubator or accelerator program that can connect you with venture capitalists.
4: Initial public offering
An IPO is when a business offers its shares to the public to purchase for the first time. This method allows a startup to raise a large amount of money quickly.
When do I know my startup is ready to raise funding through an initial public offering? Every startup is different and will have varying funding needs; hence there is no set answer to this question. However, a startup may be ready to raise funding through an initial public offering (IPO) when it has a robust business model, a solid management team, and a track record of financial success. Additionally, the startup should clearly understand the costs associated with an IPO and the potential risks and rewards involved.
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5: Debt financing
A company borrows money from lenders and repays the loan with interest.
Can my startup raise funding through debt financing? Debt financing can be an excellent option for startups that need capital but cannot yet qualify for a traditional loan. However, it is essential to remember that debt financing comes with risks and rewards. Remember to speak with a financial advisor about whether debt financing is right for your startup.
6: Equity for funding exchange
Debt financing is when a company borrows money from lenders and repays the loan with interest.
What is the impact of offering equity in exchange for capital? The effect of offering equity in exchange for funding a startup can be significant. It can provide the startup with the money needed to get off the ground; in return, its founders and employees may or may not own a more significant percentage of the company. This method can be a great way to attract and retain talent and raise capital. However, it is crucial to remember that giving up company equity means you will have less control over it.
Most entrepreneurs would like to retain most of their equity and reduce the amount they give to investors. Doing so would mean lower profits in the future, and it can be risky since a company’s control could be lost if more than half of its equity is sold.
In addition, giving away too much equity can also be risky since it can lead to losing control over the company. On the show Shark Tank, the sharks often negotiate over the type of stake they’ll get in exchange for the money they’ll invest.
7. Incubators & Accelerators:
What is the difference between a business incubator and an accelerator? A business incubator is a program that helps new businesses get started by providing space and resources. An accelerator is a program that helps businesses grow by providing access to capital, mentorship, and other resources. One way to get funding from them is to apply for grants from these organizations. Another way is to pitch your business idea to them and see if they are interested in investing in your company. You can also look for business incubators and accelerators with programs that fund startups.
Now that you know more about raising funds for your new business, what’s next? Let’s summarize:
- Develop a clear and concise business plan outlining your short- and long-term goals, including how you plan to achieve them.
- Research the different types of funding available to you and identify the ones that would make the most sense for your situation.
- Put together a strong pitch that will convince potential investors of the viability of your business.
- Build relationships with potential investors and keep them updated on your progress.
Raising funds gives business the capital it needs to start and grow. Without adequate funding, a new business may struggle to get off the ground or may be forced to close its doors. Remember to speak to an experienced startup attorney and your accountant to get started on the process of raising capital. The decisions you make today will shape your business of tomorrow.
The DECISION 168 team is on a mission to Empower Small Businesses, Entrepreneurs, and Individuals. Through the relationships and experience of our network, we will make a difference together.