So, you’ve got a great idea for a new business. You’ve done your research, formulated a business plan, thought of a name, registered your website and ordered your stationery. All you need now is the money to get everything going, or maybe you’re already up and running but badly need an injection of funds. Raising capital is probably the biggest challenge all new entrepreneurs face. Getting an outside investor to fund your dream is like getting blood from a stone; only about 0.05% of startups raise venture capital. Unless you are one of the very lucky few, you’re going to need to use other sources. Here are 4 great ways to raise money for your startup.
The first way to raise capital is to fund your own idea. Known as bootstrapping, you’re starting your company with the money and assets you already have. If you can do this – it should be the first step you take. Use savings as a source of capital or look to sell assets to secure the funds you need. Antiques, jewellery, a second car – ask yourself the question, what could I survive without? If you have a second house, or you are willing to downsize, by selling you could release large amounts of money to invest in your business. You may be very attached to these assets, and the emotional ties can be impossible to overcome. But, if you’re not willing to make sacrifices and take risks to invest in your idea, why would you expect an investor to do so?
If you can demonstrate you have a viable business plan delivering profits within a realistic time-frame, then banks can offer some very reasonable terms and interest rates. Like bootstrapping, this is another great way of raising capital in a way that keeps control of your business in your hands. You will have to put something up in the way of collateral against the loan, but if you can forge a good relationship with a bank, this can be a quick way of securing cash quickly. You do need to understand that banks by nature are risk-averse; anything you can do to reduce your risk level will give you the best chance of success. Always make sure you will be able to comply with the terms and conditions of the loan.
If you’re not confident of qualifying for a loan from a bank or similar source, then crowdfunding can be an excellent route to take. Crowdfunding is when money is raised from multiple individuals through a website or organization to fund the startup cost of a business or project. It’s innovative and growing rapidly as a method of raising funds for startups. There are numerous ways to crowdfund. You can offer trading equity in your business for capital. If your startup produces attractive goods and services, then rewards-based crowdfunding, where you get capital in return for a non-financial reward may be an option. Debt crowdfunding websites allow companies to build peer-to-peer lending platforms to raise finances – you pitch your business and interested individuals loan you money. They get bonds and get fixed returns when the time to pay off the loan arrives.
The Bank Of Mum & Dad
Family and friends can be a good way to raise the capital you need. They know you, trust you and have faith in you. Their belief in your talents can mean they are far less-risk averse than a bank or an outside investor. It also means you don’t have to clear the many hurdles of taking out a loan, while avoiding all that paperwork. You usually get to keep 100% control over your business, but many entrepreneurs are uncomfortable with going to family and friends. The emotional issues involved means that should things go badly wrong, you may not just lose your business, but your relationships too. If you decide to approach your family and friends, then it is best to treat them as you would an external investor. Give them all the knowledge of the business you can and do not sugar coat the potential risks, so they know what they are getting into. It can work brilliantly well for all concerned – Jeff Bezos’ parents took a $245,000 punt in their son’s new business in 1995. 25 years later, it’s reckoned they’ve made $30 billion from their investment in Amazon.
Interesting Related Article: “Crucial Factors For A Successful Startup“