Well-funded startups can quickly tap into new business markets, refine their products and services, and grow quickly. But unless you have a personal fortune you need to rely on capital markets or investors to offer the funding your startup requires. This can seem like a daunting and complex task, but by understanding the financial landscape and taking a few steps, you can access the funding you need to grow your startup.
Whether you’re looking for startup capital or larger business loans, this guide will explain the criteria you’ll need to be eligible, and provide the steps you’ll need to take to find and secure startup funding.
Types of Funding for Startups
Before you start searching for sources of startup capital, it’s important to understand the types of funding available, and the options you have for financing your new business. Here’s a quick overview of the types of startup capital available:
● Bootstrapping: This is the self-funding of a startup, usually by the founder, who uses their own finance to begin the business.
● Crowdfunding: Investors, customers, or supporters of a startup can offer their monetary contributions through various digital platforms.
● Angel Investing: This type of investment involves a private individual that provides capital to a startup focusing on an innovative product or service.
● Venture Capital Funding: This is often used to fund rapidly growing companies, and need to comply with certain conditions, such as share dilution and a defined exit strategy.
● Small Business Loans: Offered by governments, private lenders and other organizations, small business loans are often backed by the U.S. Small Business Administration (SBA).
What Do Startups Need to Qualify for Funding?
When you’re looking to get funding for your startup, you’ll need to meet or exceed the criteria of different financiers and lenders. Here’s an overview at what you’ll need to demonstrate for most types of funding:
● A clear set of goals: Investors and financiers need to understand the channel through which you plan to offer value.
● A strong business plan: Your vision for the company, the product, and roadmap for growth should be communicated well in an investor-friendly plan.
● A reliable source of revenue: If the investor offers a loan, they need to understand the channel through which the loan will be repaid.
● A scalable business model: Investors often want to understand that you’re able to scale up quickly and profitably when the opportunity arises.
● A solid team: Financial backers need to see that you have the ability to create and develop the company.
Go-To-Market Plan: Investors need to understand how you plan to get your product or service to match.
● A proven track record of success: Your success with previous ventures or employees should be highlighted to investors.
What Sources of Funding Should Startups Look to?
Once you understand your funding objectives and have a profile that will interest lenders or investors, it’s time to start looking for sources of capital. Here’s an overview of the types of funding sources available:
Government Grants
Governments ofte n partner with private lenders to provide financial capital for startups. Governments also award grants that provide access to capital and amounts up to $50,000. These grants are generally awarded to companies focused on agriculture, technology, social services, startups, and arts and culture.
Angel Investors
Angel investors are private individuals who offer financial capital for their own personal benefit. They don’t have to be accredited investors, but can, and often will have beneficial connections or resources that can help catapult a startup.
High Net Worth Individuals (HNWIs)
These are individuals with a net worth that exceeds a certain amount. HNWIs are often willing to invest in startups and invest alongside angel investors, banks, venture capitalists and private equity firms.
Crowdfunding
Crowdfunding is the act of raising financial capital from a large number of individuals, usually online. Startups can raise money with crowdfunding by offering equity or rewards through platforms such as Kickstarter, Indiegogo, and GoFundMe.
Venture Capital
Venture capitalists are investors that invest in early-stage startups. These investors specialize in tech, healthcare, and other high-growth businesses and typically have specific criteria for investing in a company.
Private Equity Firms
Private equity firms offer a mix of debt and equity capital and usually have a structured exit strategy. They are usually seen as more established than venture capital firms and typically invest with a longer-term perspective.
Public Offering
An Initial Public Offering (IPO) is a complex process in which a company offers its shares to the public. In return, it receives a capital investment, which can be used to fund both current and future operations for the company.
Best Practices for Obtaining Funding for Your Startup
Now that you have an understanding of the types of funding and the requirements for startups, here are some best practices to help you find and secure the funding you need.
Know The Purpose of Your Seed Money
Before you start reaching out to investors, it’s important to understand the purpose and intention of the money. Will you use it to get the business up and running, for research and development, for marketing, or something else?
Research Different Types of Capital
Each type of capital has its own set of criteria and potential benefits or drawbacks. Do your research to understand which is the best fit for you and your business.
Create a Pitch Deck
When you do meet with investors, you need to have an effective pitch deck to explain your startup quickly and succinctly, and lay out your objectives and intended benefits to potential backers.
Understand Your Funding Requirements
Understand how much you need, when you need it, how you’ll use it, and what you plan to do with the money as a return on investment. This will help you when it comes to structuring a deal with investors.
Research Different Financiers
When you’re looking for financiers and lenders, do your research to identify the best partners for your business. Make sure to keep an eye out for those who have a track record of investing in similar businesses and have experience in working with startups.
Connect With Key Stakeholders
Make time to build relationships with key influencers and network with any industry sources that have access to potential financiers. This will help you build a strong rapport and create more understanding when it comes to negotiations.
Negotiate On Terms And Conditions
When it comes to finding the right investor or lender, it’s important to make sure you negotiate on terms and conditions. This is to make sure you’re both on the same page and that the interests of both parties are well-aligned.
Securing startup capital can be a complex task and requires an understanding of the financial landscape, the types of capital available, and what lenders and investors look for. This guide provides an overview of the criteria needed to meet funding requirements and the types of capital available. It also offers tips on what sources of funding should startups look to and best practices for obtaining startup capital.
By following the advice in this guide, you should have the advice you need to structure a deal and find the venture capital, crowdfunded investments, or small business loans you need for startup success.
