Funding Options for Startups

Starting up a new company requires appropriate funding. The challenge is identifying the right type of funding to address the needs of your business. By clarifying the options to help with your start-up, you are able to compare the advantages and disadvantages of each opportunity before you move forward with a plan of action.

Common options to fund a startup company include:

  • Grants from the government or private sources
  • Angel investors
  • Venture capitalists
  • Small business loans or bank loans
  • Crowdfunding
  • Micro-financing through non-banking financial corporations
  • “Bootstrapping” through personal savings or assets
  • Strategic partnerships

The appropriate option to fund your startup business depends on the amount of money you need to get started as well as the details in your business plan. Companies with a large initial investment may benefit from strategic partnerships, angel investors, or working with a venture capital firm. If a company does not have a large initial cost, then micro-financing, crowdfunding, or small business loans may offer a better alternative to the traditional options for startup funding. The key is clarifying the amount you need to fund your business before you look into the options.

How to Fund a Startup

The process of finding funding for a startup company differs based on your specific goals and the type of resources you decide to use for the early stages of the process. A startup company needs funds to pay for paperwork, legal documents, and any materials you may need for your products or services. By clarifying the process of obtaining funding, you can avoid unnecessary complications with the early stage of building up your business.

Startup Funding Process

The process to obtain startup funding varies based on the methods you choose to use for your business. In some cases, you will need to ask how to get VC funding. In other cases, you will want to look into early stage startup investing firms or angel investors.

A common resource to help you get started is Crunchbase. You can use Crunchbase to gain insights into the ways other startup companies have obtained funding or assistance for their goals. Research is a critical part of the startup funding process because you need the information to weigh the advantages and disadvantages of various forms of financing a new company. You know that your investors will do a huge amount of research on your company, so be sure to research them too — do research to build your target list of potential investors. Look at what stage they invest in, what industries they have invested in, and make sure your company is in line with that. Startup founders need to know who they are pitching and shouldn’t reach out to investors who are clearly not the right fit.

After you have a clear idea of the options available, you want to evaluate the startup funding cycle for the type of funding opportunities you decide to pursue. Grants, for example, have deadlines and details you must follow to qualify for the funds. Pay attention to any deadlines that apply to a loan, grant, or source of funding.

Although many funding options may have a cycle, you should be aware that you can bootstrap your startup to maintain greater control over your business. The startup funding meaning of bootstrapping is simple. You pay for the startup costs out of your pocket, savings, or through a private loan. Keep in mind that you may have limitations when you decide to bootstrap your startup costs.

Startup Investors    

If you decide to seek out an angel investor or a venture capital firm, then you want to understand how the individual or company decides to invest in startups. Angel investors for startups do not make a decision without careful evaluation of your business and your plan of action. You may be asked to pitch your company to investors looking for entrepreneurs to explain your business plan and how you intend to make your company profitable.

After a pitch, startup investors may take time for their due diligence. They look into your competition and the details of your company. They may go through a series of screenings to find out the potential profitability and demand for your products or services. Startups looking for funding must take the time to develop a strong business plan and check into all the numbers before presenting a pitch to an angel investor, a bank, or a venture capital firm.

How to Get Initial Funding

When you have a strong pitch and have taken the time to research the market, it is time to evaluate how to get initial funding for startup companies. Do not assume that bad credit will prevent you from getting funding. You can look into startup funding bad credit solutions via crowdfunding or alternative funding.

The key is finding the right investors. Where should you look for an investor? That depends on how much you need to start your company and your competition. If you notice that recently funding startups for a venture capital firm have a similar business, then opt for a different firm or company. Alternatively, if you notice that no other business has similar plans, then you can reach out to a firm for funding.    

Always start with a well-planned pitch. Even your first email to an angel investor, a venture capital firm, or even a bank must convey competence, a clear plan of action, and confidence. Create a strong strong pitch deck and financial model and projections that have been researched and have a short-term and long-term strategy for profitability. Write a clear mission statement and make sure you have all the numbers set up for your plan. Your pitch should have numbers, research into the market, a plan of action for your business, and details about how you intend to improve over time.

Startup Funding Rounds

When you have a clear idea of where to look for funding and you have a pitch deck ready, it is time to start making the rounds to obtain funding. The startup funding rounds depend on your situation and the investment strategy you decide to pursue; however, there is a process that helps you obtain funding without wasting your time.

Startup Funding Stages Explained

The startup stages give you a clear idea of how to plan your funding strategy. When you start looking into the startup funding stages explained in simple terms, you want to focus on identifying the stage that fits your situation and goals.

The startup funding rounds start with seed capital. Seed capital refers to the first investment in your company and it focuses on providing the money you need for market research and the development of your product. In many cases, seed capital comes from your personal savings. It may also come from crowdfunding, seed venture firms, or similar sources.

Series A funding starts after you have developed a product and started to build up your market share. It means that you have a customer base and you are ready to move forward with expansion. When it comes to startup funding rounds, this is the secondary funding you need to grow as a company. This is the point where you want to reach out to a venture capital firm or a similar source of funding.    

The startup funding stages then move into series B funding. Series B funding is the stage where you are building on your previous success and focusing on meeting market demands for your product. At this stage, your company is established and has a strong client base. Furthermore, you are looking into building up your business by hiring the top talent in your field.

Series C funding is the point when your business is ready to move into a new market or focused on acquiring smaller companies. At this point, your business is a mid-sized company and is well-established. You are not yet ready to take your company to the public, but you are getting close to that point as you move into new markets and locations.

Series D funding is one of the later stages of the startup funding stages. At series D funding, you are likely getting ready to take your company public. When it comes to the lifecycle of a startup company, moving into an IPO is the final step into developing into a large company or corporation.    

Startup Funding Options

The options to fund your startup company break down into various sources. By recognizing the options, you will be ready to move forward with your business plan.

Funding Options for Startups

Although private investors are a potential option for your startup company, you want to find funding opportunities for startups that are not limited to private angel investors or a friends and family round. A simple option is to look into startup funding companies. A company that focuses specifically on helping startup companies grow and thrive allows you to advance in your plans.

Alternatively, you can opt for a crowdfunding approach. The growth of the internet has allowed companies to take their services to new areas, and online websites help connect startup companies to investment companies or may offer online applications for startup funding from a company directly.

If you do not want to consider financing options for startups that stem from online websites or specialized companies, then you can consider government funding for startups. Federal, state, and local government grants may offer an opportunity to obtain funding for your company. Keep in mind that grants or government funding may set a strict deadline for your applications and paperwork and on the use of the funds. 

Crowdfunding for Startups

Crowdfunding is an alternative solution to help startups get the initial seed money to start on the research and development of a product. A crowdfunding investment means that you reach out to numerous people to ask for help with your business costs. Crowdfunding websites make use of social media and sites like Kickstarter to encourage potential backers to give money for a project or a business.

Crowdfunding for startups requires you to provide potential backers with a business plan and basic details about what you plan to offer to your investors. Depending on the website and your company, you may offer a sample of your product or you may offer equity into your business. Equity crowdfunding means that you offer a stake in your business. Equity crowdfunding is still a relatively new concept for unaccredited investors, but sites like SeedInvest and Republic are some of the leaders in this emerging funding option.

If you do not want to offer a stake in your business, then you can use Kickstarter crowdfunding or Indiegogo crowdfunding to give your investors a perk for their investment. For example, you may offer a sample of your product or an extra perk when an investor contributes to your crowdfunding campaign.

Keep in mind that any crowdfunding Kickstarter startups or related tools will require a crowdfunding business plan. The plan will detail how you intend to grow as a company. If you are focusing on crowdfunding for business expansion, then you will want to detail the ways you intend to grow as a business. The key to crowdfunding for startups is to detail what your investors will get in return for their investment.    

You can also use specialized crowdfunding services like iFundWomen crowdfunding that offers a pay-it-forward model and is designed for the needs of female entrepreneurs. Keep in mind that different crowdfunding websites will have rules and standards that you must follow when setting up your campaign and reaching out to potential investors.

Tech Startups

Technology companies have a unique challenge when it comes to starting a business. Since technology is constantly changing, you need to show that you are competitive. Furthermore, you need to offer unique qualities or products that will capture the attention of potential customers in a saturated and ever-changing market.

Tech Startup Funding

Technology companies differ from other businesses due to the constant advances in technology. When it comes to tech startups, you need to find a strategy that helps you obtain funding in an oversaturated market. That brings up a common concern: how to get funding for software development that fits your company goals.

Starting a software company means you are taking a risk of competing with well-established companies. You have more competition than other industries and you also need to have something that stands out. Tech startup funding follows a similar format to other businesses, but you need to look for alternative sources of capital due to the expectations set for technology companies.

The basic method of how to fund a software startup is through your own money and reaching out to friends and family. Keep in mind that you will need to give your friends and family a reason to invest in your company. They will want to know what you are planning, how you intend to grow, and how you plan to start building your company.

Tech startups can also reach out to angel investors and venture capital firms; however, you will want a strong business plan and a strategy to address concerns about the current growth of technology. You need to make sure your software company is aware of the competition and has a plan of action to stay ahead of the pack. That will mean having the research to back your claims and a sample of your software to show potential investors.

Building up a startup company requires the right funding strategy. If you do not have a plan to finance your company, then you will struggle to get started and build up your business. The key is focusing on the right options based on your business plan and the needs of your company.

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