Today’s startup-saturated economy has its pros and cons for new budding entrepreneurs. Markets may have become more crowded and therefore investments needed to take your startup to the next level are becoming harder to obtain. Almost every entrepreneur goes through the peril of fundraising at some point. If you do not hail from a very wealthy background, you will eventually need to raise funds for your startup.
So you have a great idea, a concept, a gap in the market that could be the next big thing. Now, you need to find a way to achieve your entrepreneurial goals.
Though there are many ways to get funded, including government grants, bank loans, incubators programs etc. The following are the 4 major sources of investment that the majority of startups will use as their pre-seed or even seed capital.
The first place to look is obviously your own wallet. Some entrepreneurs save up before jumping into their new venture. They work hard and work on their company after hours. Others are lucky enough to be financially sound enough to delve right into their new business.
Should you choose to fund your own startup, you will need to put a plan in place on how you will efficiently sustain yourself and your business in the near to mid term. Be careful, It is not uncommon to see startup founders living at family or friends’ places, occasionally even in the office because they have put everything they have into their business, or they are ‘all-in’, as they say.
The second place to look for funds is, quite naturally, with your friends and family. This is because at such an early stage, it is difficult to convince people who do not know you so well to invest in your ‘vision’. An idea alone without any physical presence, ‘proof of concept’ or ‘market validation’ is quite difficult to get funded.
However your friends and family know you so well that more often than not, if you are truly the right person with the right concept, they should jump at the opportunity to back your business.
Another source of funding is to approach high net worth individuals within your network. IF you are truly onto a winner and you have a great pitch, you might be able to snag some startup capital from an angel investor.
How do you reach out to one? Through networking; expand your net a little bit wider, go to startup events and see if you can find people interested in your business. It would be wise to know that not all Angel investors are angels at heart. They might even expect interest on the amount loaned. Some might have an agenda behind helping you out. It is important to not accept the first offer of investment and to find the right investor who shares your vision.
Venture capitalists are investors that provide funding to firms that have exhibited high potential of growth or are uniquely profitable. A venture capitalist usually gets involved at seed funding, so anything south of US$1 million will likely not get your average VC excited.
You need to be well informed and experienced in dealing with corporate entities and their agendas should you choose to enlist the aid of a venture capitalist. There are hundreds of cases of founders being driven out of their own business because they gave away too much, too fast and their new board found it better to replace them.
While it may at first seem difficult, there are a number of avenues that entrepreneurs commonly use to get their startup idea to the next stage. The path of least resistance may not always be the best way forward for your fundraising needs. It is essential that whoever you bring on-board should share your vision and that you do not give away too much equity too early. Once you find the right fundraising option, it is up to you to execute on your plan ans provide real value for any of your investors. Goodluck!