Do you want to know the best ways to raise capital for your new company or startup? The statistics of Startup “success” are scary, so it is no wonder that investors are cautious when an entrepreneur approaches them with the next revolutionary business idea. Inc. Magazine reports that 25 percent of all startups will not make it past the first year. Fifty percent die within the first five years and only 10 percent of them make it to their sixth year. Another six percent are gone before the 10th year.
How can you avoid being another startup failure? It is all about raising smart startup investments. Use these 10 ways to raise money for startup businesses.
1.Understand Your Options
In sourcing for funds for your business, you must learn the basic investment terminology before approaching potential investors.
·Private Equity Firms: Private Equity firms manage investment money for private individual or privately-owned businesses. Private equity and VC firms like Angel Kings help companies raise smart capital to grow their business.
·Venture Capitalists: Venture capital financing goes to startups that have high growth potential. Top venture capital (VC) firms do more than provide cash, they help create business planning.
·Angel investors: Angel Investors are individuals with a high net worth that offer startup financing. They often work through investment groups or networks. According to angel investor and venture capitalist, Ross Blankenship, knowing how to raise money from angel investors is critical.
üHow can you raise money from Angel Investors? These angel investors will do their research, so make sure to have a polished presentation ready. Some will be interested more in the cause than the return, so look for a group that fits your niche.
2.Consider Government Venture Capital Programs
Another startup fundraising option is government sponsored programs like the one the Central Bank offers. The government can do this by providing grants or tax incentives to small business startup. Loans can also be made available from the government through other intermediaries like the commercial banks, BOI, Micro finance banks etc.
3.Crowd funding Opportunities:
When you exhaust venture capital financing and angel investing options, then crowd funding is a practical step. Unlike traditional funding scenarios, crowd funding venture networks raise money by taking a little from a lot of people. Compare this to a venture capital or angel investing group who get large amounts of money from just a few private investors.
4. Seed Funding:
Seed funding is capital raised during a seed round, but what is a seed round? With a seed round, a startup offers an equity stake like Series A Preferred stock in exchange for investment capital.
5. Create Series A Preferred Stock:
What is a series A Preferred stock? A Series A investment refers to stock offered during a seed round. Preferred stock goes to investors such as the founders who put their own money into the business, employees, friends who invest in the startup and angel investors. It makes them stakeholders in the company.
6. Apply for a Bank Loan or Line of Credit:
Unless you intend to put up personal collateral, this is probably not a viable option. Banks and any other scheme available to provide loan to you will investigate your personal credit history and look at your assets before agreeing to loan your business startup funds. And most times, their interest rates are not encouraging.
7. Barter Services:
This is a practical way to reduce your operating expenses, so you don’t need as much startup capital. It also looks good to potential partners like angel investors. A good example of bartering in action is a startup company offering computer support to another business in exchange for office space.
8. Look for a Startup Incubator:
Startup incubators or accelerators are often universities or community development groups that provide free resources to get a business started. For instance, a community group might donate space to a neighborhood grocery store to get them going. Some of the best startup incubators include 500 Startups, Y-Combinator, and Techstars.
9. Start an Online Funding Campaign:
Online groups like GoFundMe or Kickstarter give startups a chance to solicit funds from friends and strangers. People make pledges to the startup in return for a free product or service. They can also just make a donation to a business they consider worthy.
10. Use Your Own Funds… wisely:
Personal savings, loans against a life insurance policy or pension – you have the most to gain from a successful startup, so be willing to look at personal funding options if necessary.
Unless you happen across a really generous benefactor, you probably will use a combination of funding options to get going. It is all about doing the research and coming up with startup investment strategies that will sustain your business until it can stand on its own