Every concept or new business venture requires money to turn it into reality. This is a pre-requisite challenge faced by most of the entrepreneurs of the world. This initiation money is known as startup funding or venture capital.
In some cases, you may not need to outsource your funding from external sources. Your own savings and equity can fulfill the startup funding needs. However, in the majority of start-up ventures, outside funding is unavoidable.
To fulfill this gap between the required and the available funds, entrepreneurs may turn to a variety of funding sources that can be categorized as bootstrapping, debt, and equity.
But before you jump on to finding an investor, you must figure out your financial needs first.
Ways to Determine How Much Funding You Will Need
Different types of businesses have different financial needs. There is no fixed amount of funding figure for a start-up company. Your equity and savings position will determine your funding requirement.
Some basic steps to include in your start-up funding calculations are:
- Calculate the money you need for buying the assets
- Figure out your expenses on operational costs of initiating the business (come up with 12 months figures of human resource needs, variable costs, raw materials, services required, fixed costs, etc.)
- Research the market for existing businesses working in the same industry
- Determine what amount of cash you have in hand and your bank
- List your personal credit and debt liabilities
- Work out a risk cushion or contingency plan for losses
- Calculate the required amount of money you will need by estimating the difference between the available funds and the needed money
Once you know exactly how much funding you need, you can move on to the selection process. Here is our pick and we explain why you should use Fundwise Capital for your small business venture and all its benefits.
Here are the types of startup funding available to entrepreneurs:
Personal Savings and Credit
This is the foremost available fund of resources to any entrepreneur. It accounts for his own personal savings and credit limits. Adding your own equity not only makes your venture more trustworthy and reliable to the investor but also ensures easy access to money without any delays.
Family and Friends
The next line of help in your times of need are your family members and close friends. By sharing your idea and concept with them, you can convince them to invest their money in your project.
It is important to mention here, that this source of the fund should not be treated as casual but should be given due importance and legal cover like in case of any other type of investor.
This is a type of investment that is usually made in small businesses and start-ups that have high risk and high return projections. There are many venture capital firms and venture capitalist individuals who are pursuing venture capital investment in the corporate world.
Venture capital funding is mostly quite large in amount and hence helps entrepreneurs with exponential growth forecasts.
Like an angel, individuals with high net worth, fish for promising and attractive new start-up companies, and invest small amounts in them. The angel investors are ideally suitable for those entrepreneurs who are looking for a few thousand to a million dollars investment for their projects.
One of the biggest advantages of angel investors is that they work individually. Hence you do not have to worry about decision-making delays and lengthy corporate processes of securing your fundraising.
The most traditional and common source of getting startup capital for your company is the bank. With a variety of options to offer, the products and services of banks are already designed for furnishing the needs of different types of entrepreneurs.
Banks are a better source of funds because they are more proactive towards extending debt and loans to new businesses, they take lesser time to process your debt requirements and do not ask for a share or partnership in your business profits.
Some of the common start-up business loans you can opt for include:
- Personal and business loans
- SBA Loans
- Business Credit Lines
- Business Credit Cards
- Equipment Financing
- Microfinance services
Crowdfunding is a relatively new way of raising money for various purposes with the collective help of people around you. Your family members, friends, customers, colleagues, peers, and independent investors all pool in to help raise money for a particular business idea.
Crowdfunding is mostly initiated through online platforms like social media networking websites and take advantage of these vast stretching networks to enhance the outreach and collection of funds.
Crowdfunding can start from a very small amount and often promises to give the investor something in return like a product or a gift.
Incubator programs are specially designed to help the entrepreneurs of a country fulfill their startup capital needs.
With professional skills and qualified team members, these incubators help sift through different business concepts and ideas and select the ones that are most attractive and feasible.
In addition to providing them the seed money, the incubators render support and guidance needed to initiate the business from the basic idea stage to an operational business entity.
Accelerators are specialized investors that not only offer help in terms of funds but also give support for launching and initial operations of the business.
With a different range of funding and business help, every accelerator is different from the other.
Their professional services include a combination of financial investment, mentoring, and supporting guidelines for new business projects.
In most parts of the world, governments promote new small business ventures through grants and aids. They set aside funds from the federal or state governments that are extended to entrepreneurs with attractive and feasible business prospects.
Depending on your own country of origin, you can check the availability and criteria for such public grants.
Dividing your business investment requirement into different portions or stages and raising funds accordingly is called series funding.
The fund requirements are categorized into different rounds that start from seed funding and move on to A, B, C, D, and E type funds.
Depending on the size and nature of your business, you can use all or a combination of some of these series or rounds.
However, venture capital is an integral part of this process especially in the later stages of investment.
Best Business Funding Option For Your Start-Up Company
In the above text, we have highlighted some of the most commonly used and accessible sources of startup capital available to the entrepreneurs of the world.
Selecting the right source for your capital investment and funding can be a little tricky and confusing. With an attractive and financially strong idea, you can get lots of options on your plate.
It is important to understand the underlying modalities of each funding source before agreeing to its terms and conditions.
Every business owner should look into the details of the funding source and select the one that best matches the goals and objectives of the company.
The basic process of start-up funding should include these steps:
- List your funding options
- Select the most suitable sources of funding
- Present your business plan, financial feasibilities, and requirements for raising capital
- Do your due diligence and analyze the modalities and track record of the investor
- Workout terms and conditions of the legal contract
- Procure the funds
Finding Startup Funding The Right Way
Whether you are looking for large amounts or small funding sources for your new start-up venture, there are a variety of sources available to you.
All you need is to do your research and homework wisely and present your business plan with professionalism and factual projections.
Depending upon your business needs, nature, and attractiveness, you can find the right source for your capital requirements.