Business is not everybody’s cup of tea; some are suited to it but others definitely are not. If you are venturing into the world of business, remember that no startup can begin without capital, i.e., an initial injection of money.
If you want to set up a business, you need capital. In fact, even when a company is a few years old, it needs capital for, for example, expansion or to upgrade a product.
Raising capital is a fact of life for anybody who runs or has been paid to manage a business.
A startup needs to have enough cash to pay for rent, salaries, purchasing office and other equipment, marketing, advertising, utility bills, etc.
A new company also needs to have enough cash on hand to make sure that first order is delivered. Customers don’t pay in advance. They place an order, receive the product or service, and usually pay about thirty days later. Some take even longer.
A startup needs to be able to finance the purchase of raw materials to produce and deliver an order. In other words, it needs to have sufficient cash flow.
Some lucky individuals already have a backer when they set up their startup. Others have money of their own. Most entrepreneurs, however, need to find ways of raising funds. Applying for a bank loan is one possibility.
Let’s look at some other ways of raising capital:
Crowdfunding
Since the advent of the Internet, crowdfunding has become increasingly popular. However, it has been around for a long time.
It is a system of raising funds by asking many people to contribute a small amount of money each. In most cases, that money goes towards a project or venture, such as a startup.
Put simply; it means getting a crowd to fund you, hence the name. In most cases today, this occurs online. According to mall kiosk, there are several platforms today such as Kickstarter, Indiegogo, and Fundable, where people can go to raise funds.
Angel Investors
An angel investor is an extremely rich individual who provides funding for startup companies. We also use the terms seed investor, business angel, and angel with the same meaning.
In most cases, the angel investor provides funding in exchange for part-ownership of the new company. Some may ask for convertible debt.
Many multinational corporations exist today thanks to capital that angel investors provided. Ron Conway, a well know angel, provided startup capital for Google, Ask Jeeves, and PayPal.
Some angel investors operate together with others in groups, while others prefer to be on their own. We refer to a group of angels as an angel network.
Venture Capitalists
Venture capitalists are also people who invest in new business ventures. However, they generally work in venture capital firms, so, unlike angel investors, they do not use their own money.
The term venture capitalist may also refer to a firm that invests capital in startups. We refer to the money that a venture capitalist invests as VC or venture capital.
Most venture capitalists invest where they are likely to get annual returns of at least 25% within the first few years. They typically demand at least 50% ownership of the startup.
This type of investor usually provides the new company with industry and management expertise as well as business connections.
Google Ventures is a large venture capitalist firm. Scientists worldwide as well as people with good ideas prefer approaching Google Ventures and other similar firms rather than working for a large company. If their startup becomes successful, they tend to make much more money.
Friends and Family
Many successful businesses across the world began thanks to money the entrepreneur borrowed from a work colleague, friend, or family member.
If the idea of asking a family member for a loan embarrasses you, consider drawing up a contract. Make it business-like.
Competitions
There are many competitions out there for startups. They offer several benefits, such as validation and exposure, which in turn could attract investors your way.
In some competitions, the winner receives much needed capital, which comes with no strings attached. In other words, the entrepreneur gets capital without having to give up any equity or get into debt.
TechCrunch Disrupt, for example, has a first prize of $50,000. This competition is held twice a year in the United States, and sometimes in Asia and Europe.
The Pioneers Festival is a three-day event in Vienna, Austria. It has a first price of €100,000. It is one of the largest startup competitions in Europe.
Conclusion
As you can see, there are many alternatives when you are looking for funding for your startup. Hopefully, this article has opened some doors for you. Good luck!
Video – Definition of Startup
We have all heard and read the term in newspapers, journals, and other media. We know that a startup is a new or very young innovative company. However, few of us could explain why not all new companies are startups. Watch this Market Business News video (for lay people) to find out.