finance

4 Ways to Raise Capital for Your Startup

by Josh Biggs in Startup on 25th September 2019

Deciding to start your own venture is not an easy task. The fact of the matter is that many people today want to be their own boss so they decide to test their skills with entrepreneurship. Starting a business can be a challenge but running it is an entirely different story. At the end of the day, the most important factor that determines whether or not your startup venture will survive on the crowded market is finances. As you may already know, starting a business requires good initial capital.

However, that capital must be sufficient to support your business until it can become self-sustainable or until it starts generating both revenue and profits on its own. That said, 29% of startup businesses fail because they ran out of funds. Fortunately, even if you lack the capital, there are still ways you can get your business properly funded. With that in mind, here are a few ways to raise capital for your startup.

Bootstrapping

Entrepreneurs who are really focused on their startup business oftentimes decide for bootstrapping. This method of raising capital doesn’t involve any loans or investor aid. Instead, entrepreneurs fund everything out of their own pockets. This oftentimes includes tapping into your savings account or even a retirement fund if you have one, to begin with, as well as having a job on the side and pouring your salaries into your startup development. The purpose of this method is to fund the business by yourself so that you won’t owe anyone any money, which needs to be paid back later on. Although quite a difficult method, bootstrapping is one of the most profitable ones since you get to enjoy every return on investment your startup makes.

Crowdfunding

Another way to raise capital for a business is crowdfunding. This method is relatively new and a lot of entrepreneurs are interested in exploring this option. The way it works is that you present your business idea directly to your target audience through platforms, such as Kickstarter, GoFundMe, Indiegogo and others. If the audience likes your idea, they’ll donate funds to help you realize it. However, you have to specify the amount of money you need within a certain time period. If the crowd doesn’t donate enough by that time, your project is a bust and you don’t get to keep the money donated so far. That’s why this method is a bit tricky and you need to be careful with it.

Taking a loan

Every entrepreneur considers taking a loan to fund their business sooner or later. For that purpose, banks are an ideal source. However, banks oftentimes tend to complicate things. As an example, your application may take too long to be approved. What’s more, you may be denied for a loan if your credit score isn’t favorable or you may be charged with insanely high interest rates. In that case, it may be a better idea to consider fast loans from alternative lenders. More often than not, such lenders have more favorable loan conditions than banks and their approval rate is significantly faster.

Investor aid

One of the ways entrepreneurs have at their disposal to help fund their startup business and raise enough capital for business growth and development is investor aid. There are two types of investor support you should strongly consider, and those are venture capital and angel investors. Before you decide which option to go for, you must first familiarize yourself with both of them and determine what’s required of you, in order to ensure investor support, to begin with. For instance, angel investors support passionate entrepreneurs who are not looking to get rich fast through their venture. In return for their support, they ask for at least a 25% ROI once your company becomes profitable enough.

On the other hand, venture capitalists support entrepreneurs with the get-rich-fast mindset and they only support startups with the potential to become very profitable within three to five years tops. In return for their support, they ask for shares of your company, thus becoming key stakeholders in your business. Both investors require from you to prove that your business idea can, indeed, become successful and profitable.

Raising capital for your startup by yourself may sometimes seem like an impossible task. Luckily for you, there are alternative ways of funding your business other than from your own pocket. The key is in finding the right method to get your startup funded, to begin with.

Categories: Startup