The Channels to Raise Funds
Deciding to pursue your genius idea is new and exciting; however, many startups and entrepreneurs struggle when it comes time to raise the funds needed to get that creative idea off the ground. In fact, nearly 29% of startups fail due to running out of capital. Obtaining the necessary funding often takes multiple different investors, making it vital to consider these fundraising channels.
Crowdfunding
Everyone likes a good sob story or worthy cause. This sparked the crowdfunding realm with global investors willing to contribute to a startup that resonates with them. Crowdfunding is the compiling of investments from hundreds or even thousands of investors. Unlike many other funding methods, you aren’t required to pay investors back from their crowdfunding contributions.
Popular sites like GoFundMe, Venmo, and CashApp are now utilized by entrepreneurs who have a story that invokes emotions. Becoming successful with crowdfunding requires an innovative idea or approach to a problem and traction, which can be difficult for a business in the idea stage.
Angel Investors
Angel investors are another popular fundraising channel for startups. These investors will give your business capital in exchange for convertible debt or equity ownership. Many of the large tech companies we know today were funded by angel investors, such as Google and Yahoo. To secure angel investors, your business must show a strong return on investment.
Venture Capitalists
Similar to angel investors, venture capitalists infuse money into your startup in the early stages in exchange for loans or equity ownership. More commonly, venture capitalists will create a repayment schedule that includes a pre-determined interest rate. This ensures that their money will be returned with interest added on.
Bootstrapping
Bootstrapping is less common for startups that require an extensive amount of capital since it works based on contributions from founders. Bootstrapping can be beneficial if you don’t want to give up ownership of your company, but can be difficult if you don’t have a great deal of excess cash that you are willing to risk. Entrepreneurs will either pull money out of savings, obtain a personal loan, or leverage their existing assets to fund their idea.
Loans
Loans are another fundraising channel that you may want to pursue. The first loan type is a microloan. This is a short-term loan that historically has a low interest rate and minimal requirements. However, to safely use this method, you must have a strong plan for paying back the loan. You shouldn’t simply take out a loan and hope you can pay it back.
Another loan type is from government programs. The Small Business Administration frequently issues startup loans to businesses. These loans are generally for lower amounts compared to the infusions by angel investors and venture capitalists but can be sufficient depending on your startup’s capital need.
IN SUMMARY:
These are just a few of the common fundraising channels that startups and entrepreneurs utilize when looking for capital to get their businesses running. For more options or to go through what each of these fundraising types means for your business, reach out to Divocate Consulting. Our team has extensive knowledge surrounding each of these methods, giving us the ability to advise you on the best choice for your business.
