How To Raise Capital For A Business
While it’s important to get the fundamentals of your business right, like creating a solid management team, finding marketing opportunities, and setting up reliable operating systems, you must consider where the funding will come from.
One of the main issues with starting a business is attaining capital. This article tells you everything you need to know about raising money for your business.
Best Ways To Raise Capital For Your Business
Though we’ll provide some examples below, you can get even more funding advice from a successful mentor. As a young entrepreneur, there’s so much to learn about starting your own company. That’s why the guidance of a business mentor is so desirable.
To get the most actionable advice, check out our thoughts on some good questions to ask a mentor.
Here are some of our pointers on the most effective ways to get money for your startup.
Bootstrapping
In short, bootstrapping is when you start a business with whatever pre-existing money and assets you have. By stretching their personal possessions and finances, bootstrappers self-fund their startups without the help of official investment routes.
Many financial experts will advise you to use this method to raise capital because it gives you complete control of your business and will compel you to make prudent investment decisions that will guarantee you a return on investment.
Bootstrapping also helps you to avoid debt or any financial obligation to a third party. Therefore, it should be your first option when looking for ways to raise capital for your business. But since most young entrepreneurs don’t have enough money or assets to fund their new ventures, they are forced to look elsewhere.
Donations
Donations come from friends, relatives, and colleagues who believe in your business idea. Unlike other funding options, donations don’t require paperwork. Therefore, they enable you to crowdfund within your inner circle for capital without giving up equity or control.
Government Grants
Although the business grants issued by the United States government come with very strict criteria, they do not require you to lose any control of your business or pay them back. However, these grants aren’t readily available, and the application process is quite extensive. Grants are usually industry-specific, particularly in clean energy, biomedical research, nonprofit, and sustainability industries. So, depending on your industry, you’re not always likely to find a grant.
Business Loans
Loans are a more traditional funding option based on debt. You can either take a personal loan from a bank or borrow money from the government. Although government business loans come with low rates, they have stringent requirements. On the other hand, personal loans have very high interest rates and are not easily accessible to startups with no track record. So, if you choose this option, shop around for the most favorable interest rates.
Crowdfunding
Crowdfunding is a way of pooling money from different people through an organization or website to support your business or project. People can contribute to your business by making direct financial donations or trading equity. Sometimes crowdfunding contributions come in the form of tangible rewards, like merchandise, memorabilia, and exclusives, for capital. If you choose the rewards option, you will retain more control of your business.
Angel Investors
An angel investor is a wealthy individual willing to fund your business in exchange for a certain percentage of equity. This type of capital is commonly referred to as seed money, and it is almost always out of the investor’s pocket. In most cases, angel investors may also act as mentors or business advisors.
Venture Capitalists
Like angel investors, venture capitalists exchange business capital for equity. However, venture capitalists specialize in later-stage funding, and their investments can exceed $2 million.
Also, VCs do not invest out of their own pockets; they invest other people’s money in the form of private equity, pensions, etc. Usually, they get equity, as well as influence over crucial business decisions.
Each of the methods above have their own advantages, but also disadvantages. Some avenues for raising capital may be appropriate for you, while others won’t be. Be sure to take the time to thoroughly research each way, before making a final decision on how you’ll raise capital for your business.