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One of the biggest uncertainties that many entrepreneurs have in the seed stage and pre-launch phase is how to get funding for their business. There are a wide variety of sources, tools, and strategies for funding your business. As a brief overview, we have summarized the most common sources of early stage funding below:
You: Funding a startup yourself, also known as “bootstrapping,” is very common. While your funds may be limited, if you can fund your entire operation yourself, you will benefit by avoiding debt repayment while retaining full ownership of your company. Also, many other funding sources are hesitant to invest in your business if you have not invested in it yourself.
Friends and Family: Friends and Family can often be the most generous sources for startup funding. They are likely to have fewer requirements than other sources because they know you and trust your character. Funding from friends and family is usually limited, so you may need to seek out additional funds.
Banks: Banks provide many different options for business funding including loans, credit cards, and lines of credit. These are forms of debt funding. Unfortunately it can be difficult to get a bank loan if your business is brand new, but there are programs like SBA small business loans that can make this process easier.
Angel Investors: Angel investors are usually wealthy individuals who make equity investments in startups with their personal savings with the hope of reaping a large return. The size and terms of investments that they will make varies by the individual investor. Some angels organize into angel groups or networks to pool their resources.
Venture Capital: Venture Capital Firms usually invest in companies that are looking for large investments with potential for high, rapid growth and scalability. They invest large sums of money (hundreds of thousands or even millions of dollars) into startups, usually on the behalf of 3rd party investors. VC Firms are incredibly selective, usually investing in one firm out of several hundred and typically don’t invest at the early stage of a new business.
These are just some of the best known and most popular funding sources, but there are many more. If you’re not sure what type of funding is best for you, talk to people who have experience raising capital and investing in startups. Based on their experience, they may be able to make recommendations that are a good fit for your company.
In our blog series, we will individually look at each of these funding strategies, including many others, to help give you the proper business consulting you need to start your business off on the right foot.