How Can I Fund My Startup? A Look At Fundraising Options
Secure the funds you need to give your startup runway – from competitions to crowdfunding.
By Nillie Goldman (Founder & Publisher, WebToTheRescue)
For some entrepreneurial ventures, startup capital needs are minimal. If an entrepreneur has a low risk profile (and an idea that doesn’t require a lot of startup capital), this could be the way to go.
For other ventures, startup capital requirements are more involved. While there are entrepreneurs who are able to finance their startups themselves – either from savings and investments or by continuing to work at least part time – most of us need to investigate other sources of financing.
In addition to all the standard options that entrepreneurs have relied on for decades – loans, credit card financing, money from family and friends – here are some other ways that you can secure the funds you need:
Accelerators and Incubators
One really good option is to apply to be part of an accelerator, incubator, or other program that helps launch entrepreneurial ventures. The accelerator and incubator programs are typically 12 weeks long and they are intended for entrepreneurs that are at the beginning stage of their venture.
In addition to being a wonderful networking opportunity, most programs provide funding to the founders (in exchange for a percentage of the equity), as well as significant mentoring.
There are programs that are specifically for women entrepreneurs and many others that are for both men and women.
Angel Capital and Venture Capital
In addition to accelerator and incubator programs, angel capital and venture capital are the two most well known ways to obtain startup financing.
Angel investors are people who give founders initial startup capital to launch their business and in exchange, receive a percentage of the equity. While for some founders, the angels are their family and friends, more often the angel investors are successful individuals not previously known to the founders. Angel investing is high risk because of the high rate of failure for new ventures.
Angel investors also assume the risk of their investment being diluted by future rounds of financing at higher valuations of the company. For these reasons, they will be looking for the potential of a high rate of return when they decide where to allocate their funds and whether to invest in a specific venture. Angel investors can function independently or they can be part of a group or network.
Venture capitalists invest during subsequent rounds of financing for ventures that make it past the seed stage.
Like angel investors, venture capitalists also will be looking for an appropriate equity position which will give them a high rate of return to compensate for their risk and the high failure rate of new ventures. Venture capital funds can specialize in a certain industries or sectors, or certain types of companies or business models. And sometimes certain startups or founders catch their eye and they believe that it could be a winner.
If you follow some of the largest industry conferences (South by Southwest, which was just held in March, for example), you’ll see that certain startups were declared the unofficial winners in terms of the investor interest, user interest, and publicity that they generated during the conference. This usually sets them up for continued success and traction once the conference is over.
Business Plan Competitons
Business plan competitions are another source of startup funding. There are competitions that are sponsored by companies and organizations and many that are sponsored by universities for their students or alumni. Sometimes only one of the founders needs to be affiliated with the university. so check the rules of the ones that interest you. In addition to checking with any university that you have attended, there are also online directories where you can select competitions based on your industry, location, education, or membership in a group (such as women or ethnic minority).
Applying to foundations for grant funding is yet another option.
Each foundation has its own criteria about who or what they will fund, as well as a timetable of when they consider applications. You may initially find completing the applications to be complicated, so if you have a colleague who has been funding this way, you may want to ask them to review your application before you submit it. The application period is typically only once a year so here’s a case where two pairs of eyes are better than one.
Crowdfunding and Microfinance
Two additional options that are getting more attention are crowdfunding and microfinance.
Let’s start with crowdfunding which has gotten a lot of attention in the media lately. This option allows small businesses to raise money from individual investors who are investing a certain amount of their own funds. Another option, microfinance, provides loans to people who want to launch their venture but may not have access to traditional bank loans. This option has also been around for a while but recently has experienced some challenges regarding over indebtedness and lack of repayment.
Out of the Box Options to Check
As a closing thought, while you are pursuing the options described here, there are a few “out of the box” places you may want to check for some additional funds. Each of these sites will help you check if there is money that is owed to you or property that is yours and unclaimed:
- Are You Owed Life Insurance? – The Wall Street Journal (12/31/11) talks about the amount of money that is unclaimed by policyholders for life insurance policies and the efforts being made by insurance companies to locate the policyholders.
- Missing Money and Unclaimed assist in all participating states to find missing, lost, and unclaimed property, money, and assets.
- Treasury Hunt tells you about savings bonds that are no longer earning interest. If you or your family member has these bonds, they can be cashed or reinvested.
This post was originally posted at TheNextWomen.
About the guest blogger: Nillie Goldman is the Founder and Publisher of WebToTheRescue, a completely free and unbiased Entrepreneurship website designed to help founders build their companies quicker, easier, and with more support, thereby increasing their chances of success. Follow her on Twitter at @webtotherescue.