You’ve got a great idea. But without the funds to launch your business, it could remain just an idea. To get your startup off the ground you need money, and raising it isn’t easy.
Many founders struggle with how to get startup money for a business. According to one report, 29% of startups fail because they lose funding. But the good news is, there are more ways to get startup funding today than ever. Depending on the nature of your startup and how you intend to run it, different sources of funding could better suit your business needs.
If you’re wondering how to get startup money for a business, here are a few options.
Venture capitalists and angel investors
Venture capitalists and angel investors typically back high-growth tech startups in the early stages of business development, in exchange for equity in the company.
VCs are firms or funds that use capital from their investors to fund startups, while angel investors are high net-worth private individuals who spend their own money to invest. Angel investors are often entrepreneurs or founders themselves and therefore can provide guidance and mentorship to companies they choose to back. Investors will seek different levels of involvement in the company – from a seat at the board of directors to an active role in decision-making.
According to Daniel Hoffer, a member of our June ‘13 cohort and former founder of Couchsurfin, venture capitalists might hear pitches from 1,000 tech startup founders in a year and decide to back only two or three That’s why it’s critical to come prepared for a meeting with a potential investor. In addition to sharing detailed financial projections, that requires proving you have a vision for growing your idea into a high-growth business.
Services like AngelList can help undermine the traditionally inaccessible nature of venture capital by connecting entrepreneurs with investors for free. Last year, about 7,000 startups raised more than $3.6 billion through the platform. AngelList also helps companies find job candidates.
From structuring your pitch deck to rebounding from rejection, Founders Network has a collection of resources for startup investing and funding to help you learn more about how to obtain funding from investors.
Get a small business loan
A small business loan can provide startup financing while allowing you to maintain full ownership of your business.
But, with this startup funding option, you’ll have to start repaying the loan plus interest immediately.
Competition is high for this kind of funding, so you will need to prove you have strong financials, such as good credit and ample cash reserves. Because banks have strict lending requirements and often only give loans to established companies, you might have to explore other sources of business loans, like online lenders.
Check out the loan programs offered by the U.S. Small Business Administration. The agency offers some specifically geared toward startups. Microlenders are also a funding source option for startups that don’t qualify for a bank loan. They typically offer assistance to minority-led or underserved small businesses.
If your startup idea is a creative endeavor or if you plan to create a product, you might be able to fund your business using a crowdfunding service. It’s a method of raising money from a large group of people, and it’s typically done over the internet.
Don’t forget, raising startup money through a crowdfunding platform publicizes your business idea, so this isn’t a good option if your idea needs to be kept under wraps.
People who donate to your crowdfunding campaign will likely expect a gift or incentive for their contribution, like the product your business aims to sell. Crowdfunding sites like Kickstarter allow entrepreneurs to set pledge levels that correspond to different donations and different corresponding gifts.
Different crowdfunding platforms have different features – like how long it takes to withdraw or deposit money – so before you start, be sure to research the terms and conditions of each.
According to Carolina Misan, founder of Carolina Alvo, who did crowdfunding on Kickstarter for her custom petite fashion company, a useful way to frame your crowdfunding campaign is to convince donors that there is an unmet need for the product or service you plan to sell.
There’s often low risk associated with crowdfunding. With most online crowdfunding platforms, there’s no obligation to repay your donors if you don’t meet your goals.
To learn more about startup investing and funding, see if you qualify for membership to join Founders Network.
Founded in 2011, Founders Network offers lifelong peer mentorship to over 600 tech startup founders globally. Our platform, programs and high-touch service facilitate authentic experience sharing, warm introductions and long-term professional relationships. Additional benefits include over $1M in startup discounts and mentorship from 50+ Institutional Investors. Members are located in San Francisco, New York City, Los Angeles, Vancouver, Toronto, London and other tech hubs. Each month our Membership Committee admits a new cohort of full-time tech founders who are nominated by an existing member.