If you own a start-up and you’re searching for the best way to bring in investors and increase your company’s presence in the market, you have come to the right place. There are many ways to raise money that start-up owners should be familiar with, and we have compiled them all in this guide to help you. Below are 7 ways to raise funds for your venture.
With this technique, you’ll be funding your company using your own money and resources. It is the basis of most start-ups, especially those with founders who can handle both the technical part of the company and the marketing and financial part. Companies like Mailchimp and Braintree originally started with only the founders and gradually grew to have billions of dollars in assets.
This technique depends on contributions gathered from multiple people over a long time. Crowdfunding could rely on both donations and investments. Crowdfunding could happen over a website like Kickstarter or simply via forums where you offer either equity or services as a return on investments. Don’t depend on only one source to start your crowdfunding journey but instead, as Alvin Legal advises, you should use experts’ knowledge to your advantage and research your options. Crowdfunding companies offer multiple solutions to gain capital, and many consultants offer you legal and financial advice to help you land the capital you need without facing trouble. Research well and ask companies who succeeded in crowdfunding for advice. Flow, Glowforge, and many other companies are examples of successful, crowdfunded companies that went viral.
3. Family And Friends Donations
If you know you won’t have the funds to keep your company going without help, it might be a good idea to raise money by crowdfunding from your family and friends. Your family and friends can help you with the money and still give you complete control over your company, a choice that most investors won’t give you. If you know of a family member who can spare money to invest and wait for you to repay them, ask them for help.
4. Government Grants Or Loans
If your country offers grants to promising start-ups, it might be worth it to apply for one of these grants to get the funds you need. The difference between grants and loans is that loans have to be repaid, while grants, on the other hand, are a gift from the government that doesn’t have to be repaid. Most grants have rigorous criteria, and with thousands of applications submitted daily, even if you apply for a grant, chances are you won’t get a positive response fast.
On the other hand, many governments offer loans to start-ups with very few guarantees. These loans are usually strict; however, they usually offer more money than grants, and the chances of acceptance are a lot higher. In addition, government loans are usually paid over long periods, lowering the risk of accumulating debts that you can’t handle.
5. Personal Loans
If a government loan is not available where you live, it might be worth a try to check the nearest bank for a personal loan. You should know that personal loans have high-interest rates, and they are usually more strict; however, if you have good credit and a good growth plan in mind, they might be worth the risk.
6. Angel Investors
Investors are wealthy people interested in investing in a start-up company in exchange for a percentage of stock in the company. They usually act as advisors for the company and sometimes, they have control over certain parts of management. Angel investors usually have their own business besides the start-up they invest in and could move from only an investor to an owner if the start-up proved to be worth buying. Many angel investors work with investment companies, and they usually have multiple sources to verify start-up data and abilities.
7. New Ways
If you wish to get more investment and don’t like traditional ways, try inventing your way. Many companies successfully managed to earn capital by pitching their ideas to a company as a collaborator or a service provider. For example, if you have a ride-hailing app and you need money to back it up, a way to get capital in a roundabout way is to pitch your work to a bank and offer exclusive cars to them. If the bank likes your offer, they will invest in a package paid in advance for your service, which means you get a lot of money in no time without giving up any stock or equity options.
Finally, don’t forget that to raise the money you need an exit plan, and a successful exit plan needs to prove to the investors that they will get their money back even if the business flopped. Business is a scary, complicated venture. So, when pitching your ideas to investors, always mention your exit plan and the expected capital that would result from it.
Examples of some of the most common exit strategies for investors or owners of various types of investments include:
- In the years before exiting your company, increase your personal salary and pay bonuses to yourself. However, make sure you are able to meet obligations. This is the easiest business exit plan to execute.
- Upon retiring, sell all your shares to existing partners. You will get money from the sale of shares and be able to leave the company.
- Liquidate all your assets at market value. Use the revenue to pay off obligations and keep the rest.
- Go through an initial public offering (IPO).
- Merge with another business or be acquired.
Sell the company outright.
- Pass on the business to a family member.