As a startup founder, chances are you require funding. Knowing how best to acquire these funds for your business growth and success is imperative.
Startup funding comes in many shapes and forms – from friends and family to angel investors and venture capitalists – so it is possible to find funding solutions tailored specifically for your business.
1. Friends and Family
Friends and family can be an excellent source of funding for startups; however, before approaching them for money. Be wary!
They may lack experience as investors or industry expertise. Furthermore, they could be unfamiliar with the business startup financing process and lack legal documentation necessary for it.
Structure your financing wisely if you plan on exchanging equity for funds. Doing this can ensure everyone’s interests are safeguarded, and obligations clearly understood.
Step one of fundraising is gathering a list of people who may invest in your company. Start with close relatives before expanding outward into wider circles of influence.
2. Angel Investors
Angel investors are an attractive method of startup funding. By providing capital in exchange for equity ownership in the company and the opportunity to influence management decisions, these investors provide startups with capital they need for growth.
They may provide business advice or assistance during challenging periods; some even serve as mentors.
An angel investor’s expertise and connections can make an immense difference to a startup’s success; however, it is crucial that you choose an angel carefully.
Angel investors tend to be experienced entrepreneurs themselves and look for businesses with an identifiable value proposition, large market potential and the capacity for expansion.
3. Venture Capitalists
Venture capitalists (VCs) provide funding and guidance to companies demonstrating rapid expansion potential. Additionally, venture capitalists provide invaluable advice when running a business.
Consultants may assist businesses in creating strategies, connecting with potential partners and raising capital from investors or even merging and acquiring competitors through mergers and acquisitions.
Venture capitalists invest across industries and businesses. They look for firms with unique offerings or an edge in the marketplace that they can invest in.
A typical venture capital firm typically specializes in one region, industry or type of technology to ensure they make investments that stand the best chance at becoming successful players in the market.
These firms pool funds from private investors such as individuals, corporations, pension funds, university endowments and insurance companies before having them invested by venture capitalists and returned back with significant returns for all investors.
Banks are key financial institutions in our economy. They lend money to people and businesses alike, produce and trade securities like stocks and bonds, process payments ranging from personal checks to large electronic transactions, as well as provide payment processing services.
Banks make money through interest and fees for customer services such as checking accounts, loan servicing and the sale of other financial products. Banks typically earn 1-2% of their assets (loans and securities), which is often referred to as their “return on assets” or ROA rate.
As well as traditional brick-and-mortar banks, a growing number of online financial institutions have emerged to provide business loans at reduced interest rates with quicker application and approval processes than their competitors.