There are many potentially great entrepreneurs with valid ideas, but often with little knowledge as to how to take the idea further with the limited resources they have available.
Luckily there are now a variety of ways to fund businesses. All these options may be confusing at first. However, depending on the type of business you have, there are some methods that are suitable to you and some methods that are not.
A good way to start is to look at your long-term strategy, since that may determine what funding methods are best in your situation. It’s important to have a positive attitude and respect capital – anyone who is going to invest in your company does not have unlimited resources either, so never expect money without making an effort at illustrating what benefits you bring to the investor. It should be clear that you can provide a return on their investment, and where their money goes. Also, a start-up or small business investment, to some degree, comes from personal interest and experience, so take this into account when deciding who to approach and how to approach them.
Before venturing into the right approach, let’s look at the main funding options available:
- Bootstrapping simply means using your own funds to finance your business. Getting as far as you can with your own funds is a great strategy, it shows responsibility and commitment and demonstrates how you are able to invest your money wisely. It also prevents you from giving away too many shares early on as that may complicate your company structure in the future. In many cases it is the only option, as funds are difficult to raise at the idea stage. However, this depends very much on the sector you are in – investors tend to invest in some sectors earlier than in others, depending on the risk and the capital needed for product development. It also depends on your competitors and on the market: even though some businesses are not in urgent need of funds, they may need to develop faster to prevent competitors from getting ahead, or to ensure that they take advantage of market momentum. If there is demand for your product now, it does not mean that it will be the same in a few years, so plan ahead.
- Funds from Friends & Family – a good option to get you started, albeit only available to a few.
- Grants and subsidies are available for research-based projects, sustainable businesses, some types of innovative businesses and other special interest sectors. These are often country- or region-specific, so if your business’s success will strongly depend on the availability of grants, you can plan your location ahead, or in some countries, you can apply for a grant and if the application is successful, you can decide if you want to set up your business there.
- Incubator and Accelerators are varied, some may offer support in terms of business development and network, and some may help you with limited seed funding to get you to the next step. These are most suitable to potentially scalable start-ups. The aim here is to give you the necessary tools to get you started and develop your prototype or minimum viable product.
- Crowdfunding is the funding option of choice for many startups these days. It is potentially available to anyone and it can be faster than other methods. Some start-ups decide against it because they prefer privacy. It is important to know that crowdfunding is great for some companies and not suitable for others – and that you need to focus on effective marketing communication. Some sectors are ideal, as they present a concept or product that resonates well with the public – and even though there are all kinds of companies crowdfunding these days, if your business is very technical or very focused on B2B relationships, it will be harder to sell it to a crowd. Another important point to remember about crowdfunding is that it’s not enough to get the company listed on one of these platforms: depending on the campaign and the amount to raise, there may be significant work involved in mobilising investors and potential customers to participate in the fundraising process. As many already know, there are typically four crowdfunding models, with various platforms specialising in each of them: