A QUICK SUMMARY – FOR THE BUSY ONES
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“How to get more money” is the defining question of nearly everyone living under the banner of capitalism. In the case of someone trying to establish a successful startup, this question becomes even bigger and more difficult to answer. So what are some good ways to get funding for your startup?
The need for several thousands of dollars is a problem on a completely different scale than a need for a hundred bucks. You are mistaken if you hope that people will start throwing money at you just because you have a business idea.
Let’s review the possibilities available to us and see if any or maybe a combination of a few of them will help us achieve our goal of funding our own company.
Many investors won’t treat you seriously if you don’t manage to convince people close to you that your business idea is sound. It is quite rational because getting your relatives and friends on board is one of the easiest and most popular ways to get funding for your startup.
Show them a passion for your plans. People close to you can easily see through you and know if you are serious or just took a new hobby. You should also remember to not ask for more than they can give you. Guilt tripping your friends is a sure way to strain your relationship with them, which will be twice as painful if the business fails.
Be honest with them about the possibility of a failure. Most startups fail and even if you are hundred percent sure you will succeed, don’t hide the possibility that they may never get their money back. Some of your friends may have an experience or connections needed in your business. They are just as useful as money, so remember to try to ask them to share them with you.
In some countries giving money to your friends without interest rate is seen as a gift and the money is taxable. Even if your friend does not want to have a return of investment from you, you still should offer one.
Getting money from the bank may seem the most logical and easiest way of getting funding. The problem is that banks do not lend money to startups very often. They are afraid that the business will go bankrupt and they won’t get their money back.
They are not worried of lending money to well established entities with a proven track record and a good history of bringing in a good amount of cash, but they rarely trust budding entrepreneurs.
You can still try to apply for a loan. In some cases, the bank may trust people with a good credit card history and if you have some assets which can be liquidated to pay the loan back, then you have a shot at convincing the bank that you can be trusted with their money.
Venture Capitalists are investors who will give you money which you won’t need to return. They will take the part of your equity instead and may also want to have an influence over your business decisions, so better carefully read any documents you will sign with them.
You must decide if partially losing of your freedom is a good exchange for getting a lot of money. Venture capital will provide more financial help than most startups will end up needing but may make things difficult down the road for you. They may prohibit you from selling your company for example. Even if you don’t think your particular agreement will restrict your possibilities now, in five years time it may not be the case. It is difficult to predict what the future may bring.
Still in some cases, when your plans for business are big, you can go for it. It is still advised to start your big ventures with more popular, smaller ways of financing it. Begin small scale, prove the feasibility of your idea and then find a venture capitalist and go big. But first, make sure you’ve prepared a great pitch.
Crowdfunding is an excellent choice if you are sure there is a target audience in a big need for your product. This way of financing is good both for newcomers and people with a good track record. It also yields many additional benefits other than money.
Most of new startups are bootstrapped. This way of collecting funds usually will not bring you loads of money and will take time and sweat, but at least those funds are entirely yours. You won’t need to trade the part of your company for it. You won’t need to beg your uncle for money. You won’t need to force a smile for the investors.
You will have a full control of your ship, without any outside obligations to other entities. No one will try to take control away from you.
To gather your own private funding, you need to both work more and spend less. The details of it depend too much on your personal abilities, profession and time. If you work is well paid it will be much easier to save money. If it does not pay well, then you still may try to finance at least a part of your company from the savings.
This practice is quite common in many specific fields like software development. Your friend has an empty office space, you have a few extra computers. The exchange between you practically asks itself to be made!
Those are some of the ways to get funding for your startup. Remember to know the right amount of money you need before you start collecting it and do not forget to be ready for unexpected costs during your business operation.
Every year, Brainhub helps 750,000+ founders, leaders and software engineers make smart tech decisions. We earn that trust by openly sharing our insights based on practical software engineering experience.
A serial entrepreneur, passionate R&D engineer, with 15 years of experience in the tech industry.
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