Bootstrapping your startup can only get you so far, and funding from friends and family typically has too many strings attached that are best avoided. If you’re considering conventional sources to get your new business off the ground, that’s not exactly a cakewalk. You’ll have to provide collateral or demonstrate that the venture is generating revenues and profits. If your company isn’t there yet, you’ll have to rely on finance sources geared explicitly toward entrepreneurs and startups. Read ahead for detailed information about the sources you should look for and why.
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4 Sources of Startup Financing Every Entrepreneur
Signing up for a startup accelerator program is an excellent option in so many ways. For starters, you can rely on the agency for monetary support to develop a working product prototype. They’ll provide you with a workshop, the necessary infrastructure, and staff support. You’ll get exposure to peers, industry experts, mentors, and entrepreneurs who have successfully built businesses and executed profitable exits. Expect to participate in an intensive program with seminars, lectures, and networking events, while working 12-hour shifts for three to six months.
Most importantly, the agencies introduce you to their network of financiers. You’ll connect with angel investors, private funding entities, and other individuals looking for viable investment opportunities. By the time the program ends, you’ll be ready with a prototype, a compelling pitch deck to approach investors, and possibly, adequate seed capital to kickstart your venture.
Venture capitalists typically back startups and new companies with the potential for high growth and rapid expansion. These financiers can be private firms, individuals, or other entities supporting startups. The exciting thing about venture capitalists (VCs) is that they don’t just provide private funding but may also offer technical, managerial, or legal expertise. Most VCs require equity in your company and/or board seats. Since they are vested in your success, they may even bring in other investors to fund the company. VCs finance entrepreneurs at the pre-seed, seed, and early stages and support future rounds also.
Working with startup incubators is yet another way to get monetary and non-monetary support for your fledgling company. These organizations work much like startup accelerators except for one key differentiating factor. Whereas accelerators are intensive programs typically completed within three to six months, incubators take longer–going up to even a year or two. Incubators can be for or non-profit and charge a fee for their services. Alternatively, they may require a percentage of equity in your company once it’s up and running.
Like startup accelerators, incubators provide you with working spaces, administrative support, and capital. You can rely on them for mentoring, training in the various aspects of business management, and access to investors. Getting accepted into a program validates your business idea, so you have a better chance of acquiring funding when you pitch to investors.
Should you connect with startup accelerators, incubators, and venture capitalists, you can expect to get more than just funding. You can also expect expertise, mentoring, and guidance on setting up the company. But, if you need just funding, consider reaching out to angel investors. These are high-net-worth entities looking for viable investment opportunities. Further, while VCs use investment funds to support entrepreneurs, angel investors likely use their own money to support startups in exchange for equity. If this is something you want to do, attend every networking event and seek out investors. Be ready with a compelling elevator pitch deck to impress them within 60 seconds or less.
Other Funding Sources
So, what other sources can you tap? Consider options like small business grants, though qualifying for them and getting approval can be challenging. You could also try crowdfunding in exchange for complimentary products when your company starts production. Lines of credit, personal loans, credit cards, and SBA microloans are other ways to get startup financing.
Whatever finance sources you tap, be mindful of the terms and conditions and repayment criteria. Read the fine print carefully when drawing up contracts, and take your time evaluating before signing up. Also, remember that the funding you access at the pre-seed stage sets the tone for future funding rounds. Good luck!
Alejandro Cremades is a serial entrepreneur and the author of The Art of Startup Fundraising. With a foreword by ‘Shark Tank‘ star, Barbara Corcoran and published by John Wiley & Sons, the book was named one of the best for entrepreneurs. The book offers a step-by-step guide to today‘s way of raising money for entrepreneurs.
Most recently, Alejandro built and exited CoFoundersLab, one of the largest communities of founders online.
Prior to CoFoundersLab, Alejandro worked as a lawyer at King & Spalding, where he was involved in one of the biggest investment arbitration cases in history ($113 billion at stake).
Alejandro is an active speaker and has given guest lectures at the Wharton School of Business, Columbia Business School, and NYU Stern School of Business.
Alejandro has been involved with the JOBS Act since its inception and was invited to the White House and the US House of Representatives to provide his stands on the new regulatory changes concerning fundraising online.
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