When starting your new business, one of the biggest, and most common, challenges you will face is finding sources of funding to build your business from the ground up.
Below, you will learn about the importance of raising capital, and how it plays a vital role in the success of your startup. You will also discover five of the best and most reliable ways to raise capital for your business.
Raising capital for your new business
Before we dive into the most reliable funding methods, let’s first take a look at the importance of funding, and why entrepreneurs must raise capital, especially during the early stages, in order to survive and flourish in today’s increasingly competitive landscape.
According to the latest report by Failory, approximately 20 percent of startups fail in their first year, and when all is said and done, only 25 percent of new businesses make it to 15 years or more.
One primary reason for this rise in business failure rates is lack of funding. This lack of funding means that entrepreneurs aren’t able to purchase necessary inventory and equipment or tap into resources beyond money.
Therefore, funding is the fuel on which your business runs, and the lack of it may result in your company’s downfall.
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Five ways to raise capital for your new business
Now that you have a better understanding of the significance of raising capital, let’s take a closer look at five of the best and most reliable ways to fund your new business:
Angel investment
Simply put, angel investors are people who have the money and willingness to invest in your startup and provide capital for its expansion. In order to secure funds from angel investors, you’ll need to prove that your startup can generate high returns of investment.
One of the main benefits of raising capital through angel investment is that it is less risky than applying for, say, a bank loan. Angel investment doesn’t require you to pay funds back in the event of a business failure, because angel investors typically understand growth hacking and the way businesses work.
Bank loan
The next most reliable and cost-effective way to raise money for your new business is to apply for a bank loan. If approved, a bank loans money to your business based on its value, your credit limit and your ability to service the loan by making payments on time.
An advantage of getting a bank loan to fund your business is that bank loans have the most affordable interest rates, in comparison to other options, and also gives you the flexibility to spend the funds however you want it. The downside is that it can be tough for a brand new entrepreneur with no history in business to secure a loan from a big bank.
Related: 5 Financing Sources for New Businesses
Bootstrapping
To bootstrap your startup means to finance your new business from the early stages of its growth without seeking support or working capital from outside investors.
One reason why some entrepreneurs feel compelled to bootstrap their business is that they often find themselves unable to get funding from external investors, without first achieving expertise, traction, or some kind of track record to point out the initial success and potential growth of their businesses.
To bootstrap your startup, you can invest from your personal savings, or from the profits of your initial sales. You can also seek funding from your friends or family. This option may not be possible for everyone, but if you have the resources, this could work in the short term while you build your business credibility.
Crowdfunding
Another great way to fund your new business is to launch a crowdfunding campaign, raising small amounts of money from a large number of people via the internet. Crowdfunding is an innovative way of sourcing funds for your new business, projects or ideas. There are different types of crowdfunding, however, the two main types include rewards-based crowdfunding and equity crowdfunding.
While rewards-based crowdfunding is all about people donating or contributing smaller amounts of money to your business or project in exchange for some kind of reward, equity crowdfunding involves people investing in your business in return for a stake or share in it.
One of the main benefits of crowdfunding is that it is more efficient than traditional fundraising. It is also a place where you can build traction, as it helps you to gain early adopters and loyal advocates.
To run a successful crowdfunding campaign, you’ll need to do your research, know your target audience, choose the right crowdfunding platform for your startup, highlight your brand, and convey a compelling story to your audience.
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Venture capitalists
Venture capitalist funding is a type of investment funding that involves investors, typically very large institutions, providing funds to your business. Here, a venture capitalist firm acts as both a fund manager and an investor.
One of the main benefits of raising capital through venture capital funding is the ability to expand your business that wouldn’t be possible with other funding methods, such as bank loans. In addition to this, venture capitalist firms also provide valuable advice, expertise and industry connections.
Key takeaways
There you have it! These are the five most reliable ways to raise capital for your new startup. At some point in the early stages of building your new business, you’ll need to find the best funding source to grow and expand your business.
The post 5 Ways to Raise Capital for Your New Business appeared first on StartupNation.
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January 5, 2021 at 05:02AM by Aaron Chichioco, Khareem Sudlow
