How To Get Startup Money For A Business

Getting into business for yourself is one of the best ways to attain a high level of wealth. It’s relatively easy to carry out market research, draft a business proposal, and create a detailed budget. You might even already have a list of potential customers and individuals who are interested in your concept.

But many prospective founders hit a snag when it comes to figuring out how to get startup money for a business.

The solution lies in your capacity to protect and grow your investors’ funds. But it’s also ideal to seek funding from multiple sources as that will improve your chances of getting the amount you’ll need. Lastly, having a mentor to help you along the way can be extremely helpful; they’ll be able to open doors and advise you on ways to acquire capital.

How Much Will The Investor Be Entitled To?

Investors may be making significant contributions to your business, but you must put measures in place to protect your present and future interests. Before engaging with an investor (big or small), consider how much equity you’d be willing to exchange for an injection of capital. Getting clear on this aspect of acquiring an investment is crucial, as you might be giving away some control over your business decisions.

You must set a value, not just for your physical assets but also for your business idea. For example, if all your physical assets are worth $5,000 and you are developing a mobile app that you deem worth $100,000, your company’s pre-investment value would be $105,000. The trick is to persuade the investor that your company is scalable and can fetch massive returns. The investor may decide to put $100,000 into the business, bringing the total value of the business to $205,000.

Theoretically, the investor percentage would be calculated like this.

($100,000 ÷ $205,000) × 100 = 48.8%.

This gives you an idea of how the investors’ equity is determined. Nonetheless, several other factors come into play when negotiating how big a piece of the pie an investor ultimately gets.

The Importance Of Mentors

Mentors provide valuable support relating to the efficient running of your business and the process of obtaining funding. Typically, mentors have a history of successful business endeavors and have moved on to inspire and help others with their experience and knowledge. That’s why it’s key to find a business mentor.

Preparing a set of questions to ask a business mentor is a great way to optimize your time with them. Such questions might revolve around the best approach to achieve your goals, and then working with them to develop realistic timelines. You might ask about the most common mistakes that startup businesses make, which funding sources to avoid, and what sort of boundaries to set with investors.

Different Sources Of Funding

If you’re looking for a way to fund your business, make sure you explore all options available. Here are some of the types:

Personal Savings

Instead of involving additional parties in your entrepreneurial pursuits, it might suit you better to use your own savings. If you’ve got a job with a regular income, you may want to stay with it for a while and save as much as possible. If this is not enough, you can then supplement. Funding your business with the money and assets you already have is called bootstrapping.

Traditional Bank Loans

A bank loan is a more typical approach to getting startup money. You’ll need to complete a lot of paperwork. You will also need to convince a more risk-averse lender that your idea is rock solid.

Family Or Friends

If you’re blessed with wealthy family members or close friends, you could try to convince them to invest in your business. However, make sure to treat them as business partners rather than slacking over equity agreements. Also, your family should understand how the company will operate, and what their repayment plan would be, in order to avoid conflict down the line.

Venture Capitalists

Venture capitalists are always ready for an exciting adventure. These investors typically look for businesses that have the potential for a high level of growth. If you can find one who’s offering a good deal, you can get your show on the road right away.

Special Government Grants

Many countries run various industry-specific business loan schemes for their disadvantaged communities. These loans typically have very low interest rates compared to bank business loans, so they can be a great option if you find that your business is a good fit for them. 

Business Incubators

These programs are a great way to get started. Business incubators are run mainly by giant corporations or not-for-profit organizations. The great thing is that beneficiaries usually get the chance to work with a designated mentor.

Be Prepared To Bootstrap

Ambition is a virtue, and it’s essential to set the bar high for yourself. However, a startup might never kick off if the required budget is extremely high. For example, if you had set your budget at $500,000, and no investors are interested, it may be wise to cut it down to $10,000. With such a lower budget, you may be able to do most of the foundation work yourself and only outsource when it’s necessary. As the business progresses, it would become easier for investors to see how much potential your company has.

Conclusion

As you can see, there is more than one way to fund your new business, so you just need to identify the method that works for you. You may combine two or more funding options or even get your business off the ground all by yourself. If you get a moment to chat with your mentors, make sure to ask all the essential questions.