A lot of people, despite some brilliant ideas, find it hard to materialize due to a lack of money. Having reliable startup funding is essential to taking the giant leap.

Maybe you have the finest ideas, a perfect business model, a brilliant co-founder, and a drawn-up future pipeline – but all of this won’t get you anywhere if there are no funds.

While there are numerous startup funding options, a prudent entrepreneur has to learn about and avail of the best options available. This can be tricky as some options might sound enticing, but they can be a trap in the long run.

Here’s a quick guide on how to get started on funding your new business. If you are a newbie and have no idea about startup funding, we shall try to guide you on the fundamentals of startup funding.

Types of Funding

There are two basic models: One costs you equity whereas the other costs debt. Some lucky ones also get grants and gifts but that sort of funding is mostly common for non-profit businesses.

1. Debt

Debt is a form of money that you have to pay back with interest over a period of time. Bank loans and credit card loans are the most popular examples here.

For a new business, this could be a very costly option as interest rates are usually very high for a business with not a lot of cash flow. Some banks and state agencies offer small business loans too, but there are numerous restrictions, and you would need some form of collateral too.

2. Equity

In the equity-based funding model, you have to offer a certain percentage of ownership to the lender. This is most common in funding and deals with investors.

3. Grants and Gifts

As noted above, grants are common in non-profit businesses and charities. Due to obvious advantages, it is very difficult to get a grant for a for-profit business.

A gift, on the other hand, is just like someone leaving a bag full of money at your doorstep. This is tricky as people and authorities might want to know what it is that you are offering in exchange for the money. Remember, there are no free lunches.

So, having understood the basics of funding, let us now move on to the 5 well-tested options for your funding drive.

1. Bootstrapping

Yeah – you may not want to hear this, and neither is that the purpose of this article because technically, this is not a sort of funding. You are paying for everything yourself and trying to minimize the expenses until the next milestone.

But here is a thing – it will be very hard to convince someone else and take charge of their money if you haven’t invested your own money in the first place. Whenever you are doing a side project, self-funding and saving enough money to last for a few months is a way forward.

Bootstrapping is hard but equally important to test your patience and trust in your own idea. During this time, you could come up with validation theories and also test the idea-market fit.

And last but not least – all equity is yours.

2. Family and Friends

The best piece of advice that we can offer is to start with your inner circle first and then think of branching out. Around 40% of founders have raised money for their ideas from their loved ones

It is important to leverage your existing support network to keep the ball rolling. But we understand that this might not be an easy bargain as a lot depends upon your relationships and their financial conditions.

There are numerous advantages of getting funding from your inner circle as the lending is based on good faith, and there is little or no interest rate and little or no equity. These are certainly better terms than banks and traditional lenders.

When you receive financial support from your family and friends, it makes you more committed to ideas and success – as your relations are also at stake. Secondly, family members’ patience for return and support distance might be longer than traditional hungry investors who might get back in a month’s time and ask for a return.

Similarly, when a friend or family member invests money, he/she might also help in leveraging their network and hence offer extended support. This shall help build a partnership with like-minded people and find new avenues of growth.

Contrary to this, if you do not enjoy this privilege, keep reading for more options.

3. Crowdfunding

Crowdfunding means involving a large number of people to support your company with their individual contributions. This is a fun way to fund your startups as the individuals might not have a big say in operational matters of the business.

The group can also lead to an extended network of people who might help your business grow and scale – since all of them will be a stakeholder in growth. Platforms like Kickstarter have created a whole new universe of opportunities for businesses. A lot of people at Shark Tank have raised a lot of money online through these crowdfunding platforms – and scaled up their businesses.

The best part is that you can raise funding for different ventures and steps of your business. Like raise funding for stage one, and get back to the platform once you plan to launch stage 2.

Finally, crowdfunding is a great source of startup funding but requires some grip on art and science of funding. It takes a good amount of work to build and run a successful fundraising campaign. We would advise checking with these funding platforms and their case studies on how others raised money.

However, if you think this is not for you, keep reading for more options.

4. Accelerators

If you are looking for a fast lane and a somewhat simpler bit of funding, accelerators are an excellent option to ponder. This is a particularly worth-considering option for technology and SaaS startups.

Accelerators have 3 to 4-month-long programs where they focus on supercharging the growth of early-stage startups. In exchange for equity, they would help in meeting financial and resources needs and provide strategic advice too. These programs feature the provision of office space and advice. In addition to this, they also provide networking opportunities, helping you increase funding and growth potential.

While the application and selection process of such programs can be painstaking, they can be an excellent option for your business growth. Y Combinator and TechStars are two of the leading examples of accelerator programs.

5. Investors

Investors are the people who have control over a pool of assets and inject money into financial projects in exchange for shares. If you aim to grow big and scale fast, having a big investment is a must. Startups that grow big fast usually have significant investment injections to boost growth.

The tricky part is to manage investor expectations around growth and revenue streams. They would want to be part of the strategic and operational matters to ensure that money is spent in a prudent manner. Moreover, by definition, any investor would expect a return on their investment. Typically, a 10X growth is required for five years of investment – though it is not a benchmark or standard.

If we explore a bit deeper, there are three types of investors:

• Personal investors like family and friends
• Venture capital firms
• Angel investors

For new businesses, personal and angel Investors are the go-to options. These are investors who are looking to offer a relatively small amount into your business against equity and will be patient in terms of growth.

Angel investors are businessmen who have their own wealth, and not a pool of investment funds. Contrary to the VCs, angel investors may or may not ask for ownership or stake. They may be content with a certain percentage of ROI on their investing – and hence are treated as partners.

Most of the startups would like to maintain good relationships with their angel investors and even place their logos and names on the website. For VCs, you might need to have strong numbers, performance benchmarks, and a good product-market-fit validation. If you are at a stage where the required amount is in large, then VCs are your go-to option.

Conclusion

We hope that you have got the idea of startup funding and the different forms of funding options available. We have not covered government funding, private grants, and gifts – as the primary purpose of this piece was to help for-profit organizations.

If you are a non-profit or a social enterprise, there are certain government bodies and private funds that only invest in such ventures. Other than that, the rest of the options are shared across all types of businesses when it comes to funding.

At Numberly, we are committed to helping founders with their business models and funding management. Our team includes financial and business experts who have hands-on experience and international exposure – and can provide you with valuable advice on funding and other financial matters.

If interested, please schedule your free consultancy call and get your customized financial plan and projections to get started.