Startup funding is the process of raising capital to get a new business up and running. Obtaining startup funding can be quite exciting and challenging for a company as it can be difficult if the company doesn’t know the right steps to take. However, there are plenty of startup business funding options available to startups, and once gotten, the funding will aid in the company’s growth.
So, how do you get the funding? First, let’s dive a little into what startup funding really is.
What is startup funding?
Startup funding is the money required by entrepreneurs to initiate a new business. It can come from several sources and can be used for any purpose – from hiring employees to renting space, and other operating expenses that help a business get started. Startup fund can take many forms but commonly falls into one of three categories: self-funding, investors, and loans.
Startup funding is perfect for early-stage businesses. You may not require this funding if your business can be sustained on revenue alone, but if you do, the startup’s first round of funding usually begins with a seed round before moving on to Series A, B, and C rounds.
Importance and uses of startup funding
Once you know the steps to take, access to business funding is straightforward and convenient. An advantage of startup funding is the opportunity to meet and learn from other entrepreneurs. It also gives access to gain new customers, and important connections through referrals.
And once gotten, the uses of this funding include but are not limited to research (commercial and non-commercial), the launch of a business, which is the main purpose of bidding for a startup funding, and investment – funding for investment activities is mainly aimed at maximizing profits for individuals or organizations.
Types of startup funding
The number of funding possibilities can be overwhelming for a new startup, as the possibilities are nearly infinite. To simplify it, outlined below are the common types of funding for startups:
- Venture capital
Venture capital funding is beneficial when a business has a reasonable idea but may not have access to a bank loan. Venture capitalists provide capital to start-ups, and emerging companies that show high growth ability, but they are usually industry-specific, and usually invest in industries where they see massive potential for development.
- Angel investors
Angel investors are usually wealthy individuals or non-institutional investors who may be entrepreneurs themselves and often have an enthusiasm for helping small businesses and startups. Angel investors provide capital for startups in exchange for convertible debt or ownership equity.
- Loans
If the business already got some momentum and a constant stream of revenue, small company loans may be a wonderful choice. This is because traditional bank loans are very hard to obtain for businesses with less than two years of tax records. Loans remain a good option for businesses because they usually come with fewer strings attached.
- Crowdfunding
Crowdfunding enables entrepreneurs to raise small amounts from a large number of people, with no commitment of repayment or often in exchange for a gift. With the use of the internet, this strategy taps into the collective efforts of a huge number of people to gain more exposure and range.
- Accelerators
Startup accelerator programs can support early-stage companies with mentorship, marketing, operations, and access to capital. These programs are worth assessing whether your business is the right fit, as accelerators offer a large range of assistance.
- Grants
Several entrepreneurs believe that grants from the federal, state, and municipal levels will be a simple source of capital, as they are all available to small businesses in need of financial assistance, but in reality, they are quite difficult to access. But it’s not impossible, you just have to do thorough research on this alternative before building it into your plan.
- Series funding
Series funding is when an entrepreneur raises money through an increasingly larger round of capital to keep their startup moving. Entrepreneurs usually start with seed funding, then move on to Series A, B, C, D, and even E.
In general, venture capital funding is the most common type of funding after Series A fundraising.
In a Series A round, startups are expected to have a plan for improving a business model and are also expected to use the money raised to increase revenue.
When a startup is ready to raise Series B funding, they’ve already found product/market fit and need help in building up their business.
Businesses that make it to the Series C funding are doing very well and are ready to enter new markets.
Series D rounds are generally funded by venture capital firms and only a few firms make it to this stage. If few companies make it to Series D, even fewer make it to Series E.
How does an entrepreneur raise funds successfully for startups?
Firstly, before seeking out funding, entrepreneurs are usually advised to try bootstrapping or self-funding because if you’re just starting, it will be hard to get funding without showing some progress and a clear vision for the future. Bootstrapping is a debated topic, but it does help entrepreneurs keep control of their businesses.
Raising funds successfully for your startup
An entrepreneur’s ability to raise money will depend largely on his/her business idea, background, and business nature. Stated next are the general steps to follow.
- Evaluate your needs: before initiating your fundraising, take the time to think about why you need the money, how much money you need, and what milestones will it help you achieve. For a successful fundraising campaign, it’s important to have well-defined, time-bound goals that can be easily accomplished. Understanding your funding requirements lets you take the best approach.
- Decide on the best type of funding for you: do an extensive amount of research to make sure you know which type is best for your business and then target your applications accordingly. Could be accelerators, angel investors, or crowdfunding.
- Research investors: before initiating a funding campaign, it is important to conduct thorough investor research. Do enough research to make sure your investors are a good fit for your stage, location, and ticket size.
- Create a good plan: investors and lenders will want to see a business plan before handing over money. Take enough time to create a plan – the plan should summarize the opportunity, target market, implementation, marketing plan, and required funding.
- Prepare a good pitch: when it comes to developing a successful fundraising strategy, creating a good pitch and tailoring it to investors is important. Perfect your value proposition in your business pitch and make sure to showcase the things that make your business unique.
- Make a repayment plan: finally, create a plan for how you’re going to repay the money you borrow before you borrow it. If you can’t make the payment, don’t take the money.
Securing funds for your business
No specific type of funding works for every company. So when planning on getting one for your business, it’s best to analyze your company’s goals and needs before initiating the process. Whichever is chosen, it’s best to have a professional who can help facilitate the process by your side.
If you have a startup with a large potential market, with strong product or service, and you have a great team, please contact your Damalion expert to raise funds.
