Confused about how to fund your startup? Here’s a breakdown of the most popular methods and how to choose the one that works for you.
It seems like a new startup is born everyday. For each of these startups, there is a founder who has dreams of widespread adoption and success. They have a need to secure funding to launch or keep the business alive. If you’re one of these founders, or are thinking of becoming one, you’re probably a bit overwhelmed and intimidated by the funding options out there.
There are many different ways to get funding, and they all come with their own set of pros and cons. They also require competing against dozens—if not hundreds—of other startups who are also vying for attention from financers. If you’re not sure where to get funding or what strategy to use, read on to find some solutions.
Crowdfunding
Crowdfunding is a great way to get your product or service in front of people who care about it and want to see it succeed. It also allows you to build an audience long before you launch. Most importantly, it allows you to raise funding for your company without giving away shares or ownership to investors.
The main downside is that it’s not always easy to get enough traction on crowdfunding platforms, and some people may be hesitant to invest in a company that has yet to launch. With tons of crowdfunding projects out there (a lot of which go to causes like charity or medical expenses), it is a challenge to convince people to spend their money on you.
Business Loans
Aside from venture capital, getting a business loan is often seen as the most traditional way to finance a startup or business. Similar to crowdfunding, the main advantage is that you don’t have to give up any equity in your company.
However, the downside is that loans need to be repaid, often with interest. If your business fails, you will still be on the hook for the money. You also need to meet some criteria, which not all startup founders can meet, such as having a good credit history associated with your company. You also usually need strong collateral, like a home or other major assets.
Is Raising Venture Capital a Waste of Time?
Venture capitalists are investors who provide capital to companies in exchange for equity. This means that if your company is successful, they will make a lot of money. However, it also means that they will have a say in how your company is run.
The main advantage of venture capital (VC) is that it can provide a lot of money upfront, which can be helpful for companies that need to grow quickly or scale their operations. The downside is that it can be difficult to find VCs who are interested in your company, and you may have to give up more equity than you would like.
What Other Options Do Founders Have?
While the above are some of the most common ways of getting funding, they are by no means the only options. One of the best alternative ways to raise capital is to try revenue-based financing.
Revenue-based Financing
Revenue-based financing is a type of loan that is repaid through a percentage of future revenue rather than shares or ownership of the company.
Unlike venture capital, revenue-based financing doesn’t require giving up control over your company. Unlike business loans, the main requirement is to prove your company is equipped to increase its revenue in the future. This is a great option for companies that have growth potential, but don’t have enough collateral or influence to secure other types of financing.
Tips for Getting the Most Out of Your Funding
No matter what type of funding you choose, it’s important to stay focused on your vision and partner with the right people.
You need to pick a financing partner that cares about more than just the financial transaction. A trusted company like Novel Capital will nurture your business’s growth and build a relationship with you to ensure your success without trying to redirect the trajectory of your company.
When you partner with financiers who understand your vision and don’t get in the way, you can stay focused on building your company and following your dream rather than your investor’s wishes. As long as your company is moving in the direction you envisioned, you won’t stray from the right path.