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Everyone knows that start-up businesses require capital. These funds can come from a variety of sources and are the bridge between simply an idea to an actual business. Your choice of funding depends on many factors such as how much funding you need, how much are you self-funding, do you have any business credit, cash flow, or business history.
There is also a very large range of the starting capital organisations have as 33% begin with less than $10,000 while 12% start with more than $250,000.
According to a recent survey by Lendio, the most popular financing method for start-up costs in 2018 was personal funds with 77%. However, below we will outline some other funding options if you don’t necessarily have this personal capital:
Venture Capital
Venture capital funding is provided by venture funds, which are invested in by high-net-worth individuals, corporate entities, giant super funds, and other groups. These venture funds, which are managed by investors, invest in promising start-ups in return for equity stakes. In 2022, the aggregate value of venture-capital backed funding rounds worldwide was $19.71 billion, with 1104 rounds during the year.
Angel Investors
Angel investors, like VC firms, are primarily high net worth individuals that possess expertise or interest in a specific industry, vertical, or technology. Angel investors operate as individuals and thus are typically much faster than traditional Venture Capital funding.
Accelerator Funding
Accelerator programs are sources for start- up funding that provide them with professional guidance, assistance, and networking in addition to start-up capital. Most start-up accelerators are focused on a specific industry or market segment — programs will provide access to industry experts or mentors, advice, networking opportunities, and a strong sense of community amongst start-up cohorts.
Government Funding
Depending upon the nature of your start-up, your business could be eligible for the wide range of government grants. Government grants can provide your business with critical start-up funding, but the eligibility and application processes can be complicated. In recent years, government funding has been much more common for STEM and research related businesses.
Crowdfunding
Crowdfunding is the practice of funding a project venture by raising money from a large number of people, typically through the internet. However, if you have a hardware product start-up for example, it is still well worth exploring. A good example is the Pebble Watch which raised $20m long before the Apple Watch was around.
Friends and Family funding
Friends and family funding is a highly popular fallback for very early-stage start-ups, allowing start-up founders to capture start-up capital through the assistance of their immediate network. Bringing issues of money and equity into personal relationships can be complicated, however — it’s important to draw up the correct paperwork professionally and ensure all expectations are handled in a transparent manner.
With the variety of possible funding methods nowadays, you should be able to find the right way to kick off your business. It is important, however, that you recognise all the contractual and legal details to prevent any issues in the future.
