Do you have a brilliant business idea that has chances of long-term growth potential and needs some investment?
Money acts like fuel for the business. Your ideas do not generate revenue until you invest money or execute your plan. Statistical analysis showed that about 94% of business ideas fail due to a lack of money. So, securing startup funding plays a crucial role in establishing business and becoming a successful entrepreneur.
There are multiple sources out there that invest their money in the potential ideas. We will look at each source of funding and discuss which is best for you.
What is startup funding?
Startup money, also known as startup capital or startup funding, is the investment made by anyone from any source to jumpstart a business. It helps to convert a million-dollar idea into a well-established company.
The investor might pay the whole or some money needed to set up a business. The area where entrepreneurs invested includes: hiring staff, product manufacturing, and its marketing, inventory, licensing and testing, and in the area of research.
Once your business starts generating revenue, you have to reinvest to further increase the business that means more than one startup funding is required.
5 key startup funding stages
The funding has different stages; it starts from the fulfillment of basic requirements from ourselves resources followed by ongoing step by step funding.
1. Bootstrapping the first stage of startup funding
Bootstrapping is the first and essential step of startup funding because you can get funding from investors after showing that your plan is gaining popularity.
For this step, you have to invest in your business from your savings. Startup valuation is approximately 10K to 100K. You can ask to invest some capital; it is also bootstrapping or pre-seed funding.
2. Seed funding
In this stage, the investor invests money in a business for equity (shares). Seed capital is also known as seed funding or seed money. Startup funding companies invest around $3M for seed funding.
These funds are used for product launching, hiring, and marketing. You can avail seed capital from Crowdfunding, angel investors, and family or friends.
3. Startup funding Series A
This startup funding round accelerates the business, so reinvestment is required. The potential investors at this step are accelerator and venture capitalist. At this stage, there is no need to spend the funding on the development of the products.
4. Startup funding Series B
Series B is the step where you have to raise funds to meet customer’s demands. Now your growth started, you need to invest startup funding in scaling up your business or outcompeting your potential customers.
5. Startup funding Series C
It is the step of innovations or time to bring new ideas and introduce new products to reach a new market and hold them.
Sources of startup funding
Before finance collection, the crucial step is to identify the nature and type of your startup business.
There are many options for startups in which some sources are too powerful. You should opt for the source, according to the stage in which you are, to increase your business capital, but this process of fundraising takes time.
Crowdfunding
As the name suggests, the fund is not collected from a single person, so in this type of startup funding family, friends, individual investors from social media or related platforms or crowdfunding websites are involved.
This capital helps you find more funding sources. For instance, you will invest this money to search for more interested parties that provide more money for startup and growth. Advertising or promoting the services you are going to sell is a way to gain funds.
These are the step for crowd fundraising:
- Search the appropriate site for startup capital
- Establish a profile by providing some necessary information like which service you are offering (the type of business) and how much capital is required.
- People will start donating money to get some reward. The reward can be shares or equity in the business or discounts on the product, depending on the value you are adding.
Venture capital
If you are looking for big investors, venture capital is an option for you. Venture capital firms support startup financing if you have already shown some and have potential growth chances.
Venture capitalists target some specific businesses or companies. Those sectors include the software industry, space expiration industry, industrial manufacturing industry, and biotech industry. The capital that venture capital firms funded in one round to startups is approximately $135 million.
List of Few venture capital firms
Few top venture capitalist includes:
- Benchmark
- Founder fund
- Index venture
- Atomico ventures
- Azure capital partner
- Brain capital venture
- Khosla venture
Small business loans (Banks)
You can also go for a small business loan from a bank for a startup business. It is the most common source of startup fundraising. These lenders make attractive loan packages with 12- 15% interest. The interest rate varies from country to country and bank to bank.
Bank loans will be the better option for you if you want a complete hold on your business or do not want to share ownership with investors. Another advantage that small business loans offer is the chances of getting a bigger loan if you have paid back a smaller loan.
It is difficult for startup companies to meet eligibility criteria for loan approval and your personal finance remains at high risk.
Angel investors
Angel financing is the best startup funding source for businesses that are in the seed stage (early stage). The average financing made by angel investors is $750,000 per company.
Here is the list of top angel investors for startup funding:
- Seed invest
- Life Science angels
- Angellist
- Paul Buchheut
- Joe Caruso
Grant (government programs of funding)
Funding by the government is familiar and the highly competitive option of startup funding. These grants are announced by government agencies, time to time with different eligibility criteria. Government funding programs can be of these three types: Local grant, federal grant, and state grant. Local grant is mostly less competitive but less funded type of government grants.
Business accelerators
Accelerators provide finance to the seed stage business to take startups off the ground and increase their potential growth. Mentorship and office space are the two key features that you can get from accelerator programs.
There are 100s of startup accelerator worldwide in which few best are:
- Spring accelerator
- AUC Venture Lab
- Startup boot camp
- Seed engine
- Antler
- Start Lab accelerator
- AppWorks
- Supercharger
List of 10 world greatest investors
Here is the precise list of the greatest investors around the world:
- John Neff
- Jesse Livermore
- George Soros
- John (Jack) Bogle
- William H. Gross
- Benjamin Graham
- John Templeton
- Peter Lynch
- Warren Buffett
- Thomas Rowe Price Jr.
Conclusion
Startup funding is a vital part of starting a new business. A million-dollar idea without execution is of no use, and for implementation, fundraising is the mandatory requirement. Startup capital has different stages, starting from scratch bootstrapping to series C or onward need finance.
Fundraising will be easy for you if you have shown some traction in your business. Most of the capitalist or investor invest their money based on equity. To make growth, you have to select the best source of funding. Like if you are in the seed stage angel investment will be the perfect choice for boosting your business.
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