7 Real World Ways to Raise Money for a Startup
Often one of the roughest parts of a startup is fundraising. You need to spend money to make money, but you need to raise that money first, and every method of fundraising comes at its own cost.
For instance, taking on partners can mean you lose a certain amount of control over the creative and business process, and a bank loan can come with restrictions about what you can and cannot do until that loan is paid off.
Here are seven real-world ways to raise money for your startup in 2018:
1. Save it Up
There is a saying in the startup world that says, “open your wallet first.” This means that you start the process with your own money as much as you can. This can mean that you save money for a while or keep your day job while you first start out.
This might mean that you do without some luxuries you are used to, or alter your lifestyle in some ways to make room for your business. You will also put in a lot of “sweat equity” by doing work yourself that you could hire out, saving your startup money.
In the long run, your startup will pay off, and the more you invest personally, the more substantial stake you have in its success. This risk of your goods will inspire others to support you as well.
2. Get a Business Loan
One of the most common ways to raise money for your startup is by getting a business loan. There are several types of loans and determining what is right for you means you must know and understand these types.
You can get a loan from your bank, both short and long term, a small business administration loan (SBA), and other loans from private lenders. The thing to remember is that you should use a business loan calculator to determine the actual cost of the loan. This should include any origination fees, the interest you will pay, and any other costs associated with the loan.
You can get either a secured or unsecured loan, but secured loans (like those with your home as collateral) carry lower interest rates as they involve less risk for the bank.
3. Venture Capital
Angel investors or venture capitalists are often a great source of funding. They are usually more invested in your business, and your dream than a bank and can be easier to get funding from. The reason? Their investment may cost you less or more in the long run. They are taking a higher risk than a bank, so they are looking for a higher return.
For instance, a venture capitalist may invest $100,000 in your business in exchange for 5% of the net profits for three years. If your company does well, their return could be in multiples of that $100,000. If you fail, they might even lose their investment.
Venture capitalists can also be an excellent source of advice, because they are vested in the success of your business, and have seen several, good and bad. Their worth to your business is more than money.
4. Friends and Family
While this is a source many business people do not want to undertake, and it can be tricky, do not overlook that one of the best investors for your business might be your friends and family. They may already know and trust you and understand your passion in ways it can be hard to convey to a stranger.
Even in these cases, pay them back with interest, have a contract, and pay on time like you would anyone else.
5. Kick Start
Kickstarter, Go Fund Me, and many other such crowdsourcing services have funded many startup products and services. How does this work? You offer early adopters and others unique opportunities in exchange for the use of their money to either produce or perfect your product and get it to market.
The good thing about this? Those early adopters can also be some of your best advertisers, offering early reviews and testimony to the quality of what you create or do. You can set funding goals, and crowdfunding projects are some of the most shared items on social media.
6. Bootstrap
Bootstrapping means funding as you go. You reinvest every dime you get from early adopters and whatever sales you make to fund the next step in your process. This is a great way to raise money if you are selling things already.
The danger is this money is hard to count on, and if your success depends on it, you might want to rethink at least part of your funding strategy. There is nothing wrong with bootstrapping as a part of your plan though. Just be sure it has its proper place.
7. RFPs or Grants
Of course, the best funding for your business is money you do not have to pay back. While this may not be the answer for every business, be sure you thoroughly investigate before you say no.
RFP’s, or Requests for Proposals are often good for certain kinds of government and contract work. Sometimes this will mean you need specific certifications or meet certain requirements to be a government contractor. If this is not practical, you may not be the right candidate for this kind of funding, or if you do not provide the goods or services, the proposals are looking for.
Grants are another significant source of income, and while we often think of them as things for non-profits, this is not entirely true. There are often community grants, federal grants, and even private grants for those who start a certain kind of business. Investigate these. If the answer is no, at least you are aware of what is out there.
There is a lot of fiction out there about how to fund your startup. Begin with these seven real-world ways to raise money and you will be off to a successful start.
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