12 Ways To Fund Your Startup
There are about 1,000 unicorn companies globally, and their presence fueled the passion of many young and old entrepreneurs to venture into the business world.
Unicorn startups are private companies that became successful and valued at about USD 1 billion. Former unicorns are now decacorns and hectocorns because they have grown massively and are now valued at USD10 billion and USD 100 billion, respectively. Such is the fortunate fate of Facebook, Google, and Airbnb.
Today, 15.4% of the population of the United States is involved in startups, with the internet holding the most prominent investment. Well, that right there, demonstrates the entrepreneurial spirit and drive of the American people, doesn’t it?
In 2020, Stanford University held the record for founding a startup that raised USD 1 million and is among the top universities along with MIT and Harvard that have the most graduates launching a startup.
Many people are confused about the difference between a startup and a small business. Essentially, a small business already has a business model that it can use as a template for its concept, like a retail store.
Meanwhile, a startup like Facebook is fundamentally a new concept. Startups originate with an idea, and founders need to search and validate the business model before they can roll with it. Startups essentially need a lot of testing, validation, and adjustments before their adaptation.
Of course, launching a startup needs capital. If you have an innovative concept and want to fuel your startup read this blog till the end.
Here are some ways to fund your startup
1. Through Love Money
Love money refers to funds extended to you by family and friends. The seed capital is offered by people who love, support and believe in your idea. The agreement between the family and the startup founder is usually not etched on paper, which could be potentially harmful to the relationship in the long run.
2. Utilizing Crowdfunding
Startups need to reach a wide variety of audiences to market their future product, reach netizens on social media, and attract the right kind of people, such as potential users, who can help them during the testing phase.
So, what better way to disseminate the information than through crowdfunding or fundraising? If individuals, non-profits, and creatives can crowdsource, so can startups. Crowdfunding using apps has worldwide operations and can reach as many people as you would like.
Check out the crowdfunding platform at whatisup.io. This great app connects startup founders to potential investors, so you know you’re tapping the right market for your pitch, and you’re chasing the right people with the best fit for your idea.
Also known as self-funding. This funding model ensures that you have full ownership of your business, and you can take pride in your accomplishments eventually. Spending your own money may also pressure you to deliver your best, something you might not normally do if the capital is from another source.
4. Through An Incubator
Incubators are also known as the school of startups. They guide startups in the early phase of their venture until they can stand independently. They provide office space, mentorship, access to investors, and administrative functions.
This funding for startups is often interchanged with accelerators, another funding method. However, accelerators differ because they require a startup to have an MVP or minimum viable product in order to qualify.
Incubators charge a fee for their services, while some take an equity stake in the startup.
5. Trade Equity For Services
Launching a startup requires services from many individuals and agencies, and often, these services are expensive and can comprise a chunk of a startup’s investment. To initiate the development stage, founders pledge a portion of their equity or, at times, a seat on their board in exchange for services.
This pipe dream that could potentially become a unicorn is an attractive offer for many agencies and organizations.
Founders know only too well that pro bono is a rare event in the business environment, and people would always want leverage. And giving up a share of equity may also be a sign of confidence with the business idea.
6. Through Angel Investors
This isn’t about a cherub with wings, but a private investor with a high net worth. Angels or angel investors are individuals with the capability of backing startups financially.
This type of seed investor uses their own money to fund startups they believe in. Angel investors literally take startups under their wings, usually in the difficult early stages, and set up their trajectory through substantial funding that’s typically in exchange for equity.
Angel investors are typically wealthy individuals that have a vast array of investment portfolios. What’s good about trusting Angels is that they would rally for your success since their money is on the line.
7. Through Venture Capital
The venture capital industry was formed because of the need to spur innovation after the tumultuous days of the second world war, and carry the growth and recovery of industrialized countries forward.
Venture capital aids the growth of new businesses at different stages of their progress. In the United States, the West Coast accounts for a larger share of startups funded by venture capital investors since most tech startups originated there at Silicon Valley, including Intel and Apple, which Davis and Rock financed.
Davis and Rock is one of the first venture capital firms in the US and was founded by Harvard alum Arthur Rock.
VC firms identify companies they believe would have the potential for exceptional growth or those that have initially started and are prepared to expand with their business. In exchange for seed funding and multilayer financial support, the VC firm may get equity from the company or become a member of their board.
Historically, venture capitals were successful in funding unicorns, such as the case of Rock’s investment with Steve Jobs’ Apple. Rock invested about USD57,000 and eventually had a return of 23,000 %.
8. Enter Local Contests For Startups
Some organizations fund an annual contest for startups to challenge and encourage young tech entrepreneurs to create new tech solutions. Cash prizes for these contests can soar up to USD100,000, which is more than enough to fund a budding business.
Though the probability that you will win depends on the strength of your competitors, there’s really no harm in trying. Aside from the attractive prize, you will have a chance to showcase your idea to industry experts judging the event. Who knows, this could be the opportunity you have long been waiting for.
9. Government Grants And Subsidies
The NSF or National Science Foundation is the US government’s arm created by congress in 1950 that helps promote the progress of science to advance the country’s prosperity and development. They fund and support many research for the sake of the nation’s scientific advancement. This year, they will have a budget of USD 8.8 billion.
Under their agency, they have America’s Seed Fund project, which has a USD 2 million seed funding budget for startups. And what’s best about this is, they take zero equity in your company!
Since their inception, America’s Seed Fund awarded 357 companies, with 28 of those belonging to AI tech startups, with each company receiving about USD253,228.
You’ll have to prepare the best pitch and present your great idea to them. Their budget of USD 200 million goes to approximately 400 startups across the entire United States.
10. Through Small Business Loans
Startups can also opt for small business loans from lenders like the US SBA or small business administration. Loans from these types of lenders typically require collateral that can be in the form of equipment or real estate.
11. Through Business Credit Cards
For short-term financing, and while waiting for more significant financing opportunities, you may use your credit cards to purchase products or services needed by your business. You may opt for credit card companies that offer the lowest interest rates and high rewards. Though this may not be recommended because not paying your debts or a delay in payment could significantly affect your credit rating, many have resorted to this.
12. Keeping Your Day Job
The salary from your day job could be a source of an emergency fund and a way for you to pay your credit card debts. Having a day job is a form of stability that you will need as you pass through the difficult early stages of your startup.
Though this suggestion can be easily dismissed by many, this is an everyday reality that many startup founders face. They often don’t give up their nine to five because of the many opportunities and learning experiences they could get from it, especially if it’s closely related or is within the same industry.
A great idea that could be beneficial for many people deserves a spot in this world. Courage and resiliency are two qualities a founder like you should have when you’re still starting your idea. You have many options, and there are other startups that can head you to success. You’ll just have to be willing to try. Fund your future unicorn now through crowdfunding.