Wanna kick off your startup but money pressure weighs you down? Lack of funds can kill even the best business idea (according to CBinsights, it’s one of the most popular reasons startup fails), so it seems like the perfect time for you to look for external funding for your company. There are plenty of ways to get your startup funded, make sure to know of all of them in order to pick the most relevant funding source for your business. Now, let’s take this step forward and dig into the details!
Accelerators and incubators
Acceleration and incubation programs, usually dedicated to a specific industry or region, are a good choice for startups usually at the pre-seed and seed stage that want to kick off and be introduced to a wide network of prospecting business partners. They point you in the right direction of development, organize mentoring sessions and workshops and pass on valuable knowledge that is essential for further growth of different aspects of your business like sales, marketing, product, business model etc. Besides that, accelerators and incubators also support startups in getting funding.
Business angels
Business angels are private investors, usually C-level executives and successful entrepreneurs with deep expertise in specific sectors, that invest their own money (typically through equity or convertible note) and time to support portfolio companies’ growth. While looking for the best business angel for your startup, it is crucial to find one that shares your vision and brings to the table real smart money- solid business experience and connections in the industry your startup is settled in.
VC funds
VC funding is considered to be the most popular financing source for startups and mostly the first founders’ choice. No wonder VC funds can make a huge impact on startups’ growth and scaling as they are able to support innovative fast-growing companies with significant investment, usually much higher than business angels. Besides money, VC funds also support portfolio companies in expansion into foreign markets, provide expert guidance and a wide network of business contacts. Another advantage of VC funding is enabling startups to raise funds at their pre-revenue stage, and they won’t be required to repay them in case of failure. However, keep in mind that VC funding goes side by side with giving up some of your company’s shares (also control). The fundraising and investment process with VC funds requires a significant amount of startup operational time and can be a big distraction from business development. It’s worth considering, though, if your startup is developing rapidly and has the potential to become the global leader in its category.
Corporates
Collaboration between corporates and startups is becoming more and more popular nowadays as it’s beneficial for both sides. Selecting corporate as a partner can evolve into VC funding (through so-called CVC- Corporate Venture Capital), implementation of the technology solutions provided by a startup, financing your product development, and getting access to the corporate customer base and resources. On the other hand, a strong relationship with one corporation could possibly discourage its competitors from buying your products or services.
Loan
A loan as a traditional source of money provided by a bank is also an option but in order to receive it, you should submit a good financial track record and credit history, and have an already established fine relationship with the bank. Also, presenting the business plan with a thorough budget turns out to be necessary. Receiving a loan at startup stage is most likely to happen only when a bank has a special offer dedicated to newly established small businesses - look out for them as they are unfortunately a rare thing.
Revenue-based loan
A revenue-based loan is a special type of loan dedicated to small and growing businesses that allows you to receive money against your cyclic revenue and pay them back from a revenue share. Recently, it is becoming more and more popular as an alternative to VC funding.
Convertible note
A convertible note may be explained as a kind of loan taken from investors that with time converts into shares. So the convertible note deal allows investors to receive the equity instead of having the borrowed money with accrued interests back. It is a perfect way to receive funds if you want to avoid tough negotiations and piles of paperwork.
Grants
Grant is a type of financing offered by governmental institutions and organizations for young and innovative entrepreneurs. The process of applying for a grant includes plenty of formalities, time-consuming procedures, and big competition but it’s definitely worth trying as grants amount are usually impressive and non-repayable, increase your credibility on the market which raises chances of the next successful financing. There are many types of public grants, so make solid research before applying and pick the one that seems to be most relevant and suitable for your startup.
Family and friends
If you don’t want to give up the equity but you still search for a way to fund your startup, you can always try to turn to your friends and family and with some luck they will be eager and able to support your dreamed project. This option sounds nice and easy but it’s also a very tricky way as human relations are at stake here.
Personal savings
You can also try self-financing - it’s a good point to start from as you demonstrate your involvement and dedication while keeping your independence. Of course, nobody expects that your savings will cover the whole business growth process from a very early stage till the exit but they are a great way to fund your startup from its early days.
Bootstrapping
Bootstrapping is another form of self-financing that except having personal savings, requires more self-motivation and out-of-the-box approaches. It focuses on establishing strategic partnerships and barter agreements, generating revenue that covers the startup’s needs and finding co-founders with complementary skills to yours - no holds barred.
Crowdfunding
Crowdfunding consists in collecting small payments from people convinced by your startup idea via the online crowdfunding platform, where you pitch your project and post details about the fundraising goal. Your startup can choose from many different types of crowdfunding such as equity-based, donation-based, loan-based, reward-based etc. This way of funding can help to verify your idea, get feedback and attract future customers, but on the other hand, the crowdfunding process is demanding and time-consuming.
Donations
Surprised? Startups received donations too - you can observe that many online tools suggest users donate for their further development or some of them even organize regular campaigns asking for donations in order to raise funds.
Free startup credits & special deals
Startup credits and deals are not exactly real money but definitely help to grow your startup without generating additional costs. Many leading tech companies like e.g. AWS, Twilio, Zendesk, Stripe, Hubspot provide free tools or startup credits in order to attract innovative, fast-growing companies and target them right from the discoverability phase. Check out Vestbee platform for some hot startup deals and free credits.
Trade equity for services
Trade equity for services is an exchange of competencies like accounting or legal support, also known as bartering skills. As the example above, this option won’t provide you with material money but help you save them. However, be careful, as offering equity in exchange for services usually leads to a broken cap table.
Startup events
There are many startup events and challenges, dedicated to innovative companies where your startup has the possibility to be introduced to a wide network of investors, pitch your startup to a wide audience, take part in valuable workshops or win special prizes. They are definitely worth trying but on the other hand, it may turn out to be a huge distraction from running the business.
Relocation plans
A relocation plan is not strongly recommended but it's worth knowing every possibility. Some countries have dedicated relocation programs aiming to attract foreign entrepreneurs that will set up a startup there. It may turn out that they offer even better conditions for business development than your home country and provide founders with a fresh perspective on doing their business.
Your job
You probably asking yourself - should I keep my current job? There is no right answer as there are two sides of the coin. On the one hand, in order to be fully involved in the startup creation process you can’t work full time but on the other hand, it will keep you financially secure and you won’t be overwhelmed by generating huge costs without any fixed income. The best option is to find a compromise between those approaches - keep your job at the very early development phase and after that when all will head in a good direction, quit and focus on finding an investor and developing your business.
We hope our overview helped you find the best way to fund your startup taking into consideration your business needs and further development plans. If you feel that an accelerator, angel investor or a VC fund are the most relevant funding sources for your business, before jumping into the fundraising process right away, check our tips on perfect startup pitch deck and how to get your startup ready to attract investors, in order to get fully prepared for the investment process.
Wondering where to actually find your dreamed investor? Vestbee all-in-one fundraising and matchmaking platform connecting startups with a wide network of global investors is a perfect place to start.
We cross our fingers for your successful fundraising!
Related Posts:
Overview Of Top Funding Sources To Grow Your Startup (Kaja Dubielska, Vestbee)
VC Types Of Startup Funding Rounds (by Marcin Laczynski, Partner, Next Road Ventures)
How To Create A Pitch Deck That Will Get Your Startup Funded (by Ewa Chronowska, Partner, Next Road Ventures)
