6 Ways to Raise Money for Your Startup
Learn about well-tested resources you can use to raise funds for your startup
Well, you have come up with a great idea and are sure that this startup can change people’s life. Whatever great your idea is, it will inevitably require funds. This is the stage where the most of the startups face the hardship. When you go to the investors you should be ready that you’ll have to persuade all those “sharks” that your idea is worth their time and their money. Luckily, there are many ways to find investments for your company. In this article, we’ll try to show you how to seed money for your startup.
#1: Friends and family
It may seem that to go to your family members or to your friends and ask them for the money you need is the best and the easiest way. However, such an idea is not the wisest one. First of all, when asking for money from your closest people, you should keep in mind that the chances that you won’t be able to pay them back are rather high. So, you should think twice before mixing your personal relationships with the business ones.
Many entrepreneurs advice to sign the same contract with your family as you would do with the angel investors. They say that in such case you’ll show them that you mean a really serious business. Moreover, you need to clarify from the very beginning what kind of donation it is. Is a gift? Or is it a loan and you’ll have to pay the money back? If yes, on what terms? Write everything down. In this case, you’ll avoid many problems once a misunderstanding occurs between you.
#2: Venture capitalists and Angels
The first and the most popular way of raising money for the startup is to go the venture capitalists. Many young entrepreneurs are afraid to go to them as they think that they won’t take them seriously. The truth is that they are not as horrible as it may see. These are just serious people who don’t want to waste either their time nor their money.
The first and the most necessary way is to write a Business Plan. It includes a summary of the company, industry overview, your strengths, weaknesses, the main threats that you may face, as well as you future plans for at least few years. Keep in mind that an accurate and well-thought business plan will definitely increase your chances to succeed.
The best way to be taken seriously and to have something to show is to make a prototype first. If you have something visual, it increases your chances to get the investments. More to this, be ready that even if VCs are interested in your idea, you’ll hardly get the money after the first meeting. There certainly will be few more appointments, before you get the money.
One more question that you may ask is: where to find VCs? Well, there are several ways:
- Look through venture capitalists associations. These organizations provide entrepreneurs with the help to match an entrepreneur with the right investor. There exist national and regional associations. We can advise you to check the following ones: National Venture Capital Organization, Angel Capital Association.
- Go to the Internet and simply google the list of Top Venture Capitalists. Then you can easily contact them through their company e-mails or write them directly to their social network accounts.
#3: Crowdfunding sites
Crowdfunding has appeared not so long time ago but it has already helped a great number of entrepreneurs realize their dream. So, what’s crowdfunding? It’s the process when common people, “crowd” in other words (here is where the name comes from) are willing to donate money to business and startups.
There are lots of crowdfunding sites, however, the concept of all of them is relatively the same. You post your project in a group where the others will be able to look through the projects and find those they want to invest their money in. The best thing about crowdfunding sites is that you will be charged for using them only when you raise the funds. So, it’s not only a great way to find investors for your project but also to get the promotion and let people know about your startup.
#4: Incubators and accelerators
Before writing about the ways of getting money with the help of incubators and accelerators, it’s necessary to show the difference between two of them.
The first difference between incubator and accelerator comes in terms of time. Accelerators usually don’t spend much time working on your startup. As a rule, they are willing to devote from 90 days up to 4 months to one startup. They are interested in a rapid growth and are ready to provide you with the necessary investments. However, you should understand, that in exchange they usually require 3-8 or more percent of the ownership of your startup. Some of the most popular and rapidly growing accelerators are Y Combinator, Brandery and Techstars.
Unlike accelerators, incubators are more interested in a slow but stable growth of a startup. Normally, they are are working with your startup for more than a year. Moreover, as a rule, they require little or no equity of your company. Many incubators are funded by university grants thus they are able to provide the startups with the services without taking any part from your company. Here you can find a list of Incubators and Accelerators for startup entrepreneurs.
Unlike business loans, grants are much more attractive for entrepreneurs as far as they shouldn’t be paid back. However, every plus has a minus. When you get a grant you are very limited in term of how to spend the money you got. If the board finds out that you’ve invested money in something else or simply wasted it, you’ll have to pay all the sum back. Besides, it’s not always easy to find a grant that will suit your project and the competition there is really high.
The tricky thing is also that grants are not awarded for launching your business. As a rule, they are given to those who need to conduct technical researched for their idea. Also, federal grants can be given to those who are offering services to the federal government. If you fall under any of these categories, you are free to apply for a grant and raise money for your project. If not, you’d better not waste your time and efforts and try any other way we listed above.
But, in the case you still want to try, here is a great Infographics that will show 105 Small Business Grants.
#6: Winning contests
One more way to raise funds for your startup is to apply (and desirably win) the contest. But even if you don’t win any money, you still will be able to get something even more valuable - a feedback and a sound advice from experienced entrepreneurs and investors. Besides, you’ll be able to master your pitch and prepare it for future VCs and angels.
But be picky! Don’t apply to every contest you find. Obviously, it won’t help you. Choose those where the judges will be connected to the market or business sector you are targeting to.
In general, it’s not difficult to find the list of contests. We propose you to take a look at at the platform where you can check the latest startup programs and contests.
Anyway, remember that you can always find the way to find investments and raise the money. Keep in mind, when investors see the fire in your eyes, they’ll believe in your idea just like you do!
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