7 Funding Options to Raise Capital For Your Startup

There’s an old adage that money isn’t easy to come by, especially if you weren’t born with a silver spoon in your mouth.

This is particularly true for funding startups. It may be true that the almighty dollar isn’t easy to earn, but with these 7 funding options you can begin raising capital for your startup.

1.Bootstrapping

Bootstrapping is just what it sounds like. You put in the work and self-fund. This is the simplest way to fund your startup but also a paradoxically challenging route. It is often a necessary step in raising capital. The option of self-funding requires extraordinary discipline and focus in order to retain some capital from your own account. With the money you save you can put it towards your startup. This might mean that you have to penny pinch in the initial stages of raising capital for your startup.

Self-funding your startup is risky business but with determination and a lot of hard work, the end result is worth it. This requires investing your own personal finances into your startup. For many people it may be their total life-savings, giving up their 401k, and even choosing to forgo getting a personal salary from initial sales. It’s a decision that is weighty and shouldn't be taken lightly.

It’s never fun to go on a strict budget and keep a watchful eye on your expenses, but it is the first step to success. Bootstrapping means that you won’t be able to afford all the luxuries of everyday living but a penny saved is a penny earned and can go a long way in adding to your self-funded capital.

2.Venture Capital

Bringing a venture capitalist on board is a wise choice if
you’re willing to let go of some equity in your startup. Venture capitalists
are investors that help new companies get on their feet by investing money into your startup. In return, they are given a stake in your company. They typically work for a large firm as opposed to funding you individually like an angel investor would.

If you are set on independently owning your business then
venture capitalism is not a prudent choice. On the flip side it’s a great place
to start if you’re willing to give up equity and continue growing your
business. Venture Capitalist firms fund your startup with capital from a pool of investors. Venture capitalists typically invest in products that are
ready to be commercialized so it’s crucial that your startup proposal reflects that stipulation.

Partnering with venture capitalists is beneficial because
the investors are usually experienced and can help you navigate the murky
waters of startups. The equity they take is balanced out by how they can scale your business. Leaning on the experts who’ve walked in your shoes before, is a great avenue to success in any startup business.

Visit the Harvard Business Review website to learn more about how venture capital works.

3.Angel Investors

An angel investor can be advantageous if you’re prepared to share control with another person. Angel investors typically want higher
amounts of equity in your company.

This funding option is a prudent choice for a business owner who needs a lot of guidance in raising capital and growing their business. Usually angel investors play by their own rules and this may seem counterintuitive as a startup company, but again it’s a wise choice if you know you need help and a healthy dose of input. Angel investors can give you advice about certain business decisions and can even go as far as controlling some aspects of decision making. This may be necessary if you feel lost in the initial stages of your startup. The pay-off can be worth it if there are nominal differences in your
partnership.

4 .Personal Connections

Similar to an angel investor, raising capital by asking a
friend, family member, or acquaintance, is a sure way to get the funds you need but comes with its own set of challenges. All the ground rules of the
partnership need to be clarified from the get go. A written agreement or
contract is a necessary step in protecting your startup and your relationship with others. This reduces the chances of facing any legal battles and burning bridges if things do not go as planned.

One of the benefits of funding your startup through personal contacts is that it shows others, especially future investors, that someone believes in you, your product, your idea, and your vision. This backing from others is an essential part in the process of raising capital for your startup and growing your business.

Another perk of raising funds from your close relationships is that there will be less technicalities to work through. Less formalities means you are at liberty to steer the ship so to speak. You can make the decisions and have the support you need.

5.Crowdfunding

Reflected in its name, crowdfunding utilizes a large number of people to fund your startup through many small or large monetary donations. It is a collective funding effort that can really kick off your startup by giving it exposure and capital. This is commonly accomplished via popular crowdfunding websites such as GoFundMe and Kickstarter.

When using crowdfunding, you offer a prototype or some
sort of benefit that is worth a monetary exchange. As a fairly new funding
option in raising capital, it’s a trend that has launched many successful
startup campaigns that have now become common household names. It is still a developing option of funding and that is something to consider before diving in.

6.Loans

Taking out a loan is a great option in funding a startup when you need additional capital or have exhausted your options. There are
terms, conditions, and statutes that you are obligated to meet and fulfill for the bank if you are to receive a loan. The federal government offers small business loans but in many cases you have to show that you are somewhat established. You can also take on more capital by using a credit card but this is a form of debt funding and you have to keep in mind that a portion of the profits you make in your startup should be delegated to repaying your loans.

7.Licensing

Entering into a licensing deal with an existing and
successful company is another funding option to raise capital for your startup. This typically entails partnering with a larger company that could benefit from your idea or product. This can be a win-win option for both sides as the market for your product is typically already established through the company’s existing and consistent  customer base
and the company profits off your idea.

This isn’t an easy decision and is one geared towards
those who are not put off by the idea of relinquishing their independence in building their startup.