One of the most important factors for the success of any business venture is the availability of cheap capital that will enable it to expand and thrive. When entrepreneurs cannot access adequate capital, the situation can quickly become desperate and the business can fail even though the business idea was full of potential. A quick guide on the various funding options that entrepreneurs can explore for taking their startups to the next level:
Typically, most entrepreneurs take recourse to their personal savings or contributions from family and friends to get the ball rolling. The principal advantage of self-funding your business is that the funds can be more easily obtained, invariably carry no or little interest, and typically, there are no bureaucratic obstacles. However, the amount that you can access is relatively limited so it works only for modest requirements, and you also run the risk of putting your personal relationships under strain if you can’t pay back.
Approaching angel investors can be a very good option if the fund requirement is substantially more than what personal savings, credit cards, and contributions from family and friends can achieve. Angel investors are typically high net worth individuals who are willing to invest in businesses with potential for quick profits. Angel investors normally are very well networked so if your idea seems good to one of them, you can expect some more to chip in. A significant advantage with angel investments is that with their extensive experience of startups, they can mentor you on many issues. However, you need to appreciate that the amount of finance available from angel investors is limited.
When you have a fund requirement that is beyond the means of angel investors to contribute, you can explore the opportunity of venture capital. These are funds with access to private equity but are managed by professionals who have a keen eye out for investment opportunities. Venture capitalists get their return on the investment by exiting from the business when there is an IPO or the business is sold off for a profit. If you get venture capital funding, you can expect a great deal of management expertise and mentorship to be available that can ramp up the operations and profitability of the business quickly. However, if the venture capital fund is very aggressive, it may try to take control of the business and lead it in a direction that may not be to your liking. Venture capital is only suitable for companies that are stable and have a proven track record of profitability but need the funds to take it to the IPO level.
This is a funding option that has opened up due to online technology. Entrepreneurs can pitch their business ideas on the crowdfunding platforms and seek funding from investors who express interest. The success of crowdfunding depends not only on the potential of the business idea but also on the selection of the crowdfunding platform. An additional advantage of going the crowdfunding route is that you can create free publicity for your idea. You are also spared of the hassle of having to deal with very hard-nosed investors who can easily bulldoze you into an unfavorable deal. However, you will be able to attract investment only if your business idea is unique and has potential since investors have a lot of choice on the crowdfunding platform.
Business Incubators and Accelerators
If your business has just made a beginning, you can explore the opportunity of getting debt funds from business incubators for nurturing your business. These incubators do not provide very large amounts but offer intensive mentorship and networking with other startups for a collective learning experience. A variant of incubators, accelerator funds are especially focused on making your venture grow very fast.
Entrepreneurs tend to think that traditional banks have no interest in funding startups and this is the main reason why so many alternative funding options have emerged. While it is true that the typical bank does tend to be somewhat conservative in its approach, there is absolutely no reason why you should not approach a bank if you have a business idea that is solid and the business plan is credible, realistic, and structured properly. Depending on your requirement, you can get working capital form banks or more long-term funding for business expansion. Bank loans, however, are available only if you have collateral securities to offer. If you already have a working relationship with the bank and a history of making loan repayments on time, you stand a better chance of getting a bank loan.
There are a large number of contests for entrepreneurs to showcase their business idea and passion against competitors in return for very lucrative funding opportunities. If you believe that your business idea is truly outstanding and you have the necessary skills to make a pitch that’s impressive, you should definitely consider participating in as many contests as you can. Winning contests requires thorough preparation and skills as well as a lot of luck, however, if you do manage to win one, you will also benefit substantially by a large amount of publicity. There are many factors behind winning a contest or for more details, you can visit here, so you should always be prepared for losses and not get demoralized.
Government Programs Offering Startup Capital
Most entrepreneurs ignore government programs that provide startup capital; however, they are an excellent funding source. Typically, the application process comprises submission of a detailed business plan accompanied by an executive summary for review by the grant committee. If the plan passes, the fund is disbursed according to the indicated milestones. While the amount of funding can be quite substantial, the application process and approval can take a long time.
As an entrepreneur operating in a crowded and competitive market, getting adequate and timely funds can mean the difference between success and failure. You should be extremely nimble and be prepared to switch funding sources at short notice. Being a good judge of the pros and cons of each route is a big advantage.
John Bell has been writing articles on Social Media, skilled business consultant and Financial Advisor for the last few years. In this post, he has written about the benefits of Social Media Marketing, Business, Finance as well as the features related to the same.