Acquisition of funds helps one build a startup. However, raising these funds has become an immense challenge. It affects most people especially if one does not know where to begin. Research from business experts shows that most business startups launched within a year capitulate due to a myriad of reasons. Confiding to one’s set up and trailing an incorrect path may be vital and harmful to one’s ability to raise funds and it also wastes time.
There are numerous ways through which one can generate funds for their businesses. Some of the main methods are angel investors, crowdfunding, and bootstrapping. Technology has made this easy as it is currently easier to find online investors who are willing to invest in one’s businesses in exchange for shares. Below are various ways one may raise funds for their Startup.
Lack of capital is a malignant obstacle that causes startups to fall. To prevent this one may gain funds through crowdfunding. There are various types of crowdfunding. Therefore one needs to analyze each type and find the perfect fit for their business depending on the equity and rewards gained from the crowdfunding.
Crowdfunding is a platform for individuals to pitch ideas to potential investors who may be willing to invest in their business ideas. One may take their pitch on a crowdfunding platform and they may share their business model and explain how the business works and it’s potential to thrive and grow. Once the investors accept the idea, they make their pledges to support the business model and they make donations towards funding the startup and project.
Any option chosen from the crowdfund options should have low risk as the main idea is to put the product in the market in exchange for funds and finances. Through crowdfunding, one may uphold control over the business and they may gain rewards. Numerous businesses select crowdfunding as their primary option of raising funds to maintain freedom of censorship.
One advantage of crowdfunding is that it gives the consumers a chance to choose between several investors, and when the idea is extremely lucrative more investors may offer more funds to overtake their competition. It also creates the potential to attract venture capital investment as the business progresses. It additionally eliminates the intricacies involved in placing your business in the hands of investors or a broker. Through it one may wield the power to simplify the crowdfunding platform. Crowdfunding leads to creation of public interest for your organization and therefore one may gain free marketing and finances simultaneously. It also has disadvantages such as the heavy competition it creates as several similar businesses expect the same funding solution. If your business pitch is not solid the investors may overlook the business .
Bootstrapping is one of the most efficient, effective, and inexpensive ways of ensuring a business has positive cash flow. It means one may borrow less funds and reduce interest costs. It refers to finding one’s business idea by using personal finances. Bootstrapping is one of the most common ways of raising funds or funding for a business in its early stages.
Founders or the team members pool their money together for their startup. Professional investors who invest in the market prefer this type of funding. For bootstrapping to be effective, one must have savings or assets that may be used for the startup. Funding one’s startup is one way of attracting potential investors. Self-funding is important as it creates flexibility in terms of servicing loans and internal debt as opposed to external sources. This type of funding also involves friends and family contributions, therefore one might raise some funds or all the funds required in starting the business.
One advantage is that this method is flexible and it is easily accessible in comparison to loans from Saccos Chamas and banks. It also has little to no bureaucratic obstacles. Another advantage is that bootstrapping also gives the owner control of the business from its premium stages, or it gives the owner high shares and equity and that affects the baseline. Lastly, it has flexible interest rates. Its disadvantage is that Bootstrapping does not work well for large businesses, it only works for small startups.
Angel investors are very popular because of shows such as Lion’s den. In the entrepreneurial world, it has been prominent to startups as they not only provide finance and mount one’s business, but they also provide mentor-ship and experienced guidelines. These angel investors invest millions as sometimes the potential investors come together and pool funding. Getting funding from investors is as easy as reaching the right people, however, it has to be done in the right way.
These angel investors may be found in social media sites such as LinkedIn, websites, and blogs. Most investors are often ready to offer funds if the business is eligible, some also have a ready market, which makes it easier for one to penetrate the market. It is important, however, to ensure that one chooses an investor that specializes in a similar market.
One of the main advantages of having an angel investor is that they can easily offer the full fund required to start a business. Secondly, it helps ensure the business has a head start as most investors help run the business to ensure it is successful. They also help as they offer mentorship alongside funds for the startup. One of its disadvantages is that the investors may ask for larger shares and equity in exchange for making investments. It also puts a lot of pressure on the business’s founder because the investors require to see the business they invest in thrive.
Banking institutions help provide financial backing on loans to individuals who approach them well with a solid business plan. To get the loan the business must have a good structure. It should convey a modus operandi, profit forecast, and estimated time for maturity. It gives an individual the potential to run their own business. This is a good option for entrepreneurs that are confident that their business will prosper and run without difficulties. One should consider the interest rates and the collateral required. Banks offer working loan capitals, which are designed to transverse a full cycle of revenue generation. Stocks and debtors have leverage on limits. They also offer funding loans. This involves providing a business plan and concise information of the valuation and the project report on which the loan is sanctioned.
One advantage is that the capital given can fast track the income a business earns. It also ensures capital is accessible by entrepreneurs. One disadvantage is that it has a high risk of collateral loss. This is because it is an important requirement to have security in exchange for loan grants.
Implementing the tactics such as loans, angel investors, bootstrapping and crowdfunding plays an important role in increasing the chances of generating capital or startup funds for one’s business. They help in kick-starting a business and in some cases such as angel investors, they help in marketing. To stay relevant in a competitive market, one must always interchange funding sources. This provides some flexibility and prevents exhaustion of personal funds.
Categorised in: General
This post was written by Martha Adhiambo
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