In almost all cases, in order to run a startup you will need capital that will cover your initial expenses and fund your startup up until the point where it can begin generating revenue and become self-sufficient. Assuming you’re mulling over the idea of venturing out into the startup world, one of the first questions you’re going to need to ask yourself is: Where do you get the funding that you need?
Generally there are several options that you can pursue to raise the funding that you need for a startup, and they are:
Currently one of the popular ways to raise capital and fund a startup is by crowdfunding. Essentially you’ll publish details of your business plan and the product that you intend to create and people will pledge money – often to ‘pre-purchase’ the product or acquire other benefits. Although crowdfunding is a nice option because you will retain full control of your business, it is competitive and securing funding can be difficult unless your idea is rock solid.
Business incubators and accelerators
In many ways both business incubators and accelerators play the same role though they tend to invest at different stages of a startup. Incubators mostly focus on the very early stages and help startups get off the ground, whereas accelerators focus on helping them make a big step forward. In both cases the incubator or accelerator will provide you with a fixed amount of capital in exchange for a share of the business – though sometimes that capital is provided incrementally and contingent on your startup hitting certain targets.
Loans or bootstrapping
Bootstrapping refers to the idea of self-funding, which is normally not a feasible option unless you happen to be flush with funds. Instead, many entrepreneurs often take out bank loans – either in the form of personal loans (which are risky) or business loans (which are subject to numerous conditions). In either case it is a difficult path to go down and your debt management needs to be on point should you choose to pursue it.
Angel investors and venture capitalists
Both angel investors and venture capitalists will invest in startups in exchange for a share of the business. However while the former normally does so in the early stages and provides mentorship, the latter is more focused on investing in businesses that are a bit beyond the startup phase and could go for an IPO – where they will cash out.
Of course there are other options that you could pursue to raise funds for your startup, such as taking part in some of the many startup competitions that are out there, getting business loans through microfinancing, or shooting for government or state sponsored programs that fund businesses. Regardless of the option that you choose to pursue, be sure that you have properly outlined your business plan and budget so that you know exactly how much capital you will need to raise to fund your startup.