Guest Post by Maya Kirianova

When we think about a new business, we believe it is an exciting journey full of innovation, creativity, and prosperity. However, a startup owner must first consider where to get financial backing. According to SmallBizTrends, one-third of startup businesses begin their operation with less than five thousand dollars, and as the World Metrics‘ research shows, around 30% of startups fail because they run out of cash.

Entrepreneurs often struggle with multiple risks associated with new ventures. We aim here to provide a comprehensive guide on nine effective sources of startup funding to minimize these risks and secure further progress.

1. Bootstrapping

Bootstrapping means starting and growing a business with personal savings and revenue generated by this new company alone. This method has many advantages. You maintain full ownership and control over your business decisions, avoid loans and debt, do not have to meet investor expectations and learn a lot to ensure your business’s vitality and success.

Successful bootstrapping requires managing personal finances correctly, minimizing initial costs, focusing on cash flow, and reinvesting profits back into your business to fund growth. You must also think about using free resources and support networks like online courses or mentorship programs to gain more expertise.

2. Angel Investors

Angel investors are high-net-worth investors who are ready to provide capital to startups in exchange for equity or convertible debt. They are often successful professionals who share their expertise, mentorship, and network, too. Angel investors are pretty advantageous because they can provide significant funding and have extensive business experience. They are flexible for deal terms and repayment structures and can introduce new entrepreneurs to a broader network of customers, partners, and investors.

To attract angel investors, you have to prepare a clear and engaging pitch, including the story of your business, its unique approaches, and the problems you want to solve. You also have to develop a strong business plan, demonstrate that your business has traction, and build a skillful team.

2. Venture Capital

VC (venture capital) is private equity financing that can be provided by venture capital firms or foundations. They invest in startups in exchange for equity or ownership stakes in the company. Such investments are usually provided in rounds (Seed, Series A, Series B, etc.), depending on the startup’s needs.

VCs can provide such benefits as access to significant capital, expertise, mentorship, networking opportunities, enhanced credibility, and a focus on rapid growth. However, you may face immense equity delusion, loss of control, intense pressure due to high VCs’ expectations, their possible exit within 5-10 years, and rigorous due diligence.

Therefore, it is worth taking some steps to secure venture capital, such as developing a strong business plan, assembling a talented and experienced team, preparing a clear and persuasive pitch deck, and researching potential VC firms thoroughly to ensure a good fit. Be prepared for due diligence and involve legal and financial advisors to negotiate the investment terms.

3. Crowdfunding

Crowdfundingis a method of raising capital via the Internet or other collective efforts of many individuals. Donors contribute small amounts of money to fund a project or business. Crowdfunding can be reward-based, equity-based,
donation-based, and debt-based (so-called peer-to-peer lending).

The advantages of crowdfunding include:

direct access to capital;
market interest, demand, and validation;
customer engagement;
marketing and increasing your brand’s visibility;
receiving valuable feedback and insights.

The most popular crowdfunding platforms are Kickstarter, Indiegogo, GoFundMe, Crowdfunder, SeedInvest, LendingClub, and others.

According to Lynda Miller, the growth manager at Examgo, a successful crowdfunding campaign “needs clear goals, a compelling story, high-quality content, attractive rewards, and expressing your appreciation to backers. You must start marketing your campaign before it goes live to build a pre-launch audience, track its performance, and adjust your strategy.”

4. Small Business Loans

Small business loans can be of different types, including CBA loans, traditional bank loans, microloans, business lines of credit, equipment and invoice financing, merchant cash advances, and personal loans for businesses.

Small business loans offer benefits such as direct access to capital, retained ownership, full control of the company, fixed repayment terms, building the business credit rating, and meeting diverse operational needs.

To qualify for a small business loan, you have to prepare a strong business plan, maintain a good credit score (680 or higher), demonstrate financial stability, offer collateral, show proof of revenue, showcase your industry experience and expertise, ensure the correctness of all legal documentation (business licenses, registrations, and statements), maintain a healthy debt-to-income ratio (ideally below 36%), and sign a personal guarantee.

5. Grants and Competitions

As for grants, they are non-repayable funds provided by private entities, non-profit organizations, or governments to support small businesses and startups. They can be federal, state, local, corporate, and non-profit by type.

Business plan competitions require the submission of a detailed business plan, your business model, market analysis, financial projections, and strategy for growth. Winners usually receive cash prizes, mentorship, and access to resources.

In pitch contests, business owners present their business ideas to a panel of judges in 5-10 minutes. The presentation is commonly followed by a Q&A session. Winners receive prizes such as funding, mentorship, and networking opportunities.

6. Strategic Partnerships

A strategic partnership is a mutually beneficial agreement between several businesses that agree to collaborate on common goals. So, they are ready to share resources, knowledge, expertise, and market access.

Strategic partnerships provide such benefits as access to new markets, resource sharing, innovation and development, enhanced credibility, risk mitigation, competitive advantage, and increased sales and revenue.

You can identify potential partners by their strengths, capabilities, resources, shared values and vision, reputation, reliability, and meeting customer needs.

7. Incubators and Accelerators

Business incubators are designed to support startups at their early stages with resources, mentorship, and office space. The period of such support can be quite extended, typically from one to five years.

On the other hand, business accelerators are intensive and time-bound programs that last for a few months. During this period, your startup can obtain mentorship, funding, and resources in exchange for equity.

Business incubators and accelerators can have such benefits as mentorship and guidance, finding opportunities, extensive networking opportunities, access to essential resources, educational workshops, and training sessions, credibility and
validation, market exposure, and focused growth.

To apply for incubators and accelerators, you need to choose those that align with your industry and goals, prepare a consistent application (including a business plan, pitch deck, team, traction, a compelling narrative, application essay, sometimes, video
submission, referrals and recommendations, etc.). Try to show your commitment, follow the instructions and application guidelines, and get prepared for interviews.

8. Final Thoughts

Funding is critical for launching startups. There are numerous ways of funding to consider, including bootstrapping, investments from friends and family, involving angel investors and venture capitalists, exploring crowdfunding, small business loans, grants, competitions, and strategic partnerships.

Remember that every business is unique and what works for one may fail for another. That is why it is very important to explore various options to determine the best fit for your specific needs. You can also think about diversifying your funding sources to get more flexibility and financial stability. The right funding strategy can lead to your business’s growth and thriving.

About the author

Maya Kirianova
Maya Kirianova is a freelance writer with a passion for crafting engaging content that spans various niches that range from technology to business.