Startup funding can seem complicated when you have a business idea and just want to bring it to life. However, the financial aspect is looming in your head and your business plan is like an enormous mystery.
While you may be very confident in your startup idea, financial management can often feel like a daunting and never-ending process. We can attest that it is a never-ending process, but it doesn’t have to be daunting or complicated.
Funding your business idea has numerous phases and each phase has several options according to your funding purposes. We suggest that you consider all the options and choose the best fit for your business plan.
Today you’re in luck! This is a complete guide that will help you figure out how you can fund your startup at varying stages and help you decide which funding option is the best for you.
So, if you are at a point where you only have a startup idea that you believe in, this guide is for you because it will walk you through the various funding options for initial capital.
This guide will also offer you the right information if you are a startup that is just recently established and looking for ways to procure working capital.
Most startups nowadays are related to technology in one way or another, including apps, AI, SaaS, etc.
For example, Hiya, a startup that earned the 1st spot on Forbes 2021 best startup employers list, is also a phone app.
They started as a startup but have gradually established themselves as a very successful entity. Now, they are at advanced stages of funding.
Find out what those stages are and how you can get there.
You start by assessing your startup business idea and figuring the purpose for which you need funding.
Do you need a small sum of money to commence your startup?
Or, Do you need a large sum to even start the business?
Or, do you need less at the beginning and more money to keep it going?
You can do all of this assessment on your own, or you can hire a consultant to help you analyze and predict how much money you need at the moment and how much you will need as working capital. Consultants at Grokalp can help you understand your current stage and help you in the upcoming stages of a business lifecycle.
When you have completed a comprehensive analysis of your current state and financial needs, you should assess your options.
What are my options?
Depending on where your startup is at the moment, you have several options for each phase. You may be still just thinking about your business idea, or you may have funded part of it and brought it to life, partially. No matter where you are in your business lifecycle, what matters the most is that you make the right financial choices to sustain it as a success.
What is pre-seed funding?
It’s startup funding when you are just beginning to start your business and are walking down the path of turning your idea into a reality. This is the beginning of your startup so it is very unique and crucial from other businesses because each startup requires its own set of finances and plans to be built from the ground up.
Fund it yourself
You may have had a job before you decided to have a startup business, so you may already have some money saved. This money is the safest option for you to invest in your business.
A lot of people keep their day jobs to fund their startup in the pre-seed funding phase.
You already believe in your idea so much so that you want to create a business around it. So, why not invest in it yourself?
Funding your startup yourself will both show people that you are serious about what you are doing and that it has the potential to grow and succeed.
Some very big names in business have started like this, including Under Armour, where the founder collected $20,000 from five different credit cards to start his business.
Ask friends and family to invest
Again, the question of trust arises when you consider friends and family as a potential help to finance your startup idea. If they trust you and your plan, they are more likely to invest and help you.
Do not take them for granted, rather pitch to them as if they were serious investors, because they are. Tell them in detail why your idea is worth investing in and offer them as much explanation as they need in the process. Some of these people may turn into your biggest investors, so take them seriously.
Friends and family investing are not only great from the financial point of view but also reflects confidence when you pitch to outside investors. It shows them that you and your business idea are indeed trustworthy.
However, don’t take this business-family-friends combination lightly. Your family or friends may care a lot about you and you may care a lot about them. But, sometimes family members or friends may ask for equity in exchange for their investment. You may even have a business deal whereby you give the business equity for their investment. But, you have to make sure that this will not ruin your relationships or your business. Clarity and sound paperwork is the key to avoid that.
Be a good judge of the situation and try to understand if it’s best to take the money from family members or friends, or otherwise you can use other funding methods if you fear it will affect your relationships or business.
Pitch in startup events
Startup events are continually providing support for startups that are creative and show growth potential.
Look for such events in your area or anywhere that you can travel to, even online. Grab this opportunity to pitch your startup idea and leave the people awestruck who are listening to your idea.
Check out these tips on how to create an effective pitch deck and what it should include for a better chance at impressing the jury at startup events
This is the stage where you start planning for the next stage. At this stage, you can consider all of the above methods of funding.
You can still rely on your own money if you have saved enough.
You can continue to ask your family and friends for support.
And, you can still participate in startup events and seek small funds.
However, you might have attempted the above-mentioned process, what’s needed now is bigger funding for your startup. Hence, some other methods might seem more suitable for this purpose at this stage,
Government Loans or Grants
Sometimes governments offer loans or grants depending on your startup idea and the goals of the government.
Government loans or grants are very common in certain fields and business industries. Fields include Technology, Agriculture, and others that affect people on a macro scale.
To apply for such grants you have to research your industry and what your government or other governments are doing in that aspect. It can help a lot to have a consultant who would help you find the best opportunities and how to approach governments in such cases.
Angel Investors
Angel investors are what the name suggests, individuals who invest in your business. However, they choose businesses with high potential because they receive equity from the business, that is, they consider the return on their investment.
As such, these investors require careful consideration. You have to be well prepared to pitch to them and show extreme professionalism and proficiency to instigate their curiosity.
After that, you have to impress them with your business idea by showing them how well you have thought of every aspect of doing this business and assure them of the success you foresee for your startup.
Some Angel Investor online platforms where you can find angel investors include Angels Den, Angel List, and Angel Investment Network.
Startup Incubators
Startup incubators are organized events with teams of individuals who have experience in running businesses that guide startups. They are a great option to seek funding for your startup because the people involved know a lot about startups and they can assess your idea from a different perspective.
Also, incubators are generally a fantastic idea for you as a startup founder to get help, feedback, and professional advice. Overall, you can get a lot of resources and benefits by partaking in startup incubators. Go right ahead and try them out!
Crowdfunding
Crowdfunding is an online method to accumulate small investments from a large number of individual donors
Crowdfunding is done on online platforms where you have to pitch your business idea and do your best to impress a lot of people.
It’s important to note that crowdfunding is a great option for creative and innovative business ideas because those are more likely to attract people from all facets of life who are curious about innovation.
Here are some of the best crowdfunding sites based on your startup needs
Series A funding is required at the phase where you start funding your startup and look for expansion and sustainability.
You may have started and initially funded the business but now it’s time to grow, so this is where you utilize venture capital funds, i.e. you receive money in exchange for shares.
Venture capital (VC) is a great option for many startups because you don’t only receive funds but also receive advice and mentorship from your investors.
Similarly, during this period you can also apply for loans in banks or from ventures because you have some traction in your business that you can show them as proof of how well your startup is doing.
The way of approaching venture capital should also be taken into consideration. VCs don’t invest in every idea or startup that approaches them. They are selective rather picky about their choices
Oftentimes, startup owners approach as many venture capital firms as they possibly can in the hope of an investment. However, this is far from the best course of action.
Venture capital firms should be chosen wisely. Do your research and try to determine which VC matches your ideas and would understand your view as an investor for your startup.
Look up their values, what they believe in, and what are they interested in. This way, you will be able to choose a VC that could have more potential and consider investing in your business. Time is of the essence, so consider saving theirs and yours as well. You are most likely to get investment if the VC’s values align with yours.
Furthermore, you have to be very professional and precise in the way you approach VCs. In most cases, having a referral to your selected and well-researched VC will do wonders.
When you get the chance to pitch to a VC, you have to do your absolute best.
Remember, they don’t know you like your friends and family, so you will have to prepare and deliver your pitch as best as you can.
Hiya, the company we mentioned in the beginning, has raised $18 billion in their series A funding. This goes to show that with a great idea and good preparation, you can take your business to even greater heights.
Series B and C Funding
Much like series A, series B and series C funding (sometimes even series D), are funding rounds through which you can procure funds for your startup in order for it to grow and progress even more.
The need for other series of funding can be assessed within the startup once you have hit it off and are doing well.
Not all startups need series B or series C funding. Because every company is unique, so for growth, you must not follow success examples blindly and always do things your way.
In series B funding, companies start acquiring talent and human resources. The focus shifts on developing the product further and inventing through the business plan. For a lot of companies, this is a stage where a major elevation takes place and funding become necessary. In such cases, venture capital firms are often a good choice.
In series C funding, startups are barely startups anymore. They are now an established business and doing well enough to secure a lot of trust from the investors. In this stage, even hedge funds can be involved in the investment process. These companies have proven that they have a successful business model and they are managing their work well.
In Series C funding, the investments may be used for much larger inputs such as entering new markets, developing new products, or even as far as acquiring other useful business entities.
So, how do I fund my startup?
As you can see from the various phases and methods of funding, there is evidently not only one way to do it.
Each startup begins in a different situation and dwells with a different set of resources.
Find what suits you best. Your startup idea may be great, but you may not have the funds to bring it to life. You must find what suits you best with a critical sense of seriousness.
You may have some personal funds, but they may not be enough to take the business where you plan and intend to. Moreover, personal funds might be in abundance but are just not enough to quench that human nature that seeks approval.
This is why it's best to hire a consultant or get some expert advice as to how you should approach your current situation. Focus on learning from others experiences rather than doing it all by yourself.
Here at GroKalp, we have a mission to help startups manage all aspects of their development, from crafting a highly functioning business plan to researching the market and profiling the customers to preparing and aiding you in seeking funds and investors.
Having a startup can be both thrilling and frustrating, but having a consultant take care of the frustrating aspects, enables entrepreneurs like yourself to pursue your big dream and transform your business into a concrete reality.
Having a startup can be both thrilling and frustrating, but having a consultant take care of the frustrating aspects, enables entrepreneurs like yourself to pursue your big dream and transform your business into a concrete reality.
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