How to Raise Money for Startup Businesses: 9 Funding Options
If you are in the early stages of starting a company, you know the importance of having cash on hand. From payroll to rent to material costs, there are plenty of reasons you’ll need money available, often on short notice. As your business grows and the bills roll in, you’ll quickly realize that your company will need more than a solid concept and high hopes to keep it afloat.
If you’ve been wondering how to raise money for startup, we’ve put together nine funding options to get you started:
1. Start Saving Money
The moment you have an idea for a business, it is important to start saving your own money. Not only will you be happy to have cash on hand, but it is also helpful for investors. Many decision-makers, from family to private investors or bank loan managers, like to see that you have invested yourself before approaching them for money—that you have ‘skin in the game’.
2. Borrow Money from Friends and Family
When you’re thinking about how to raise money for a startup, you should consider asking your friends and family. While it can be awkward to ask friends or family to borrow money for your business, they can be an excellent source for startup loans. Chances are, friends and family will be able to make a decision quickly, they will be flexible with interest rates and payback terms and they will have little-to-no bureaucratic process to get through.
3. Find Angel Investors
Angel investors are individuals, and sometimes groups, who have a significant amount of capital to invest and a willingness to bet on a good idea. Angel investors often provide mentorship and are comfortable with a certain amount of risk in exchange for a solid return on their investment. Typically, an angel investor can inject a good amount of capital, but less than you might receive from venture capital investment.
4. Find Business Incubators
A business incubator gives early stage companies access to shared space, investment capital, mentorship and other support. They are designed to help launch new businesses as they figure out operational models, financial plans and more. Cities across Canada have business incubators that help to provide startups with the tools and knowledge they need; some operate as a non-profit, while others provide seed capital in exchange for equity.
5. Find Investment Opportunities
When it comes to funding your startup, you want to consider many different types of business investment opportunities. Have a look online for alternative ideas around funding. Perhaps there are contests you can enter to gain funding and publicity or strategic partnerships you can make with other local companies. Maybe you’ll find a similar company, elsewhere in the world, who has a business similar to yours and might be willing to share their ideas for investment funding. Don’t be afraid to get creative and explore new funding models for your startup.
If you have recently started a business of your own, you are likely on the lookout for investment sources to keep things running smoothly. Over time, you may need to use more than one source of extra income. Keeping your eye out for opportunities and financial aid can help you weather the storms and be ready for growth when opportunity strikes. We hope this list of ideas on how to raise money for startup has inspired you to look beyond traditional sources for your new business.
6. Seek Venture Capital
Venture capital firms invest in small business, where they see significant opportunity for growth. If your company is able to receive this kind of funding, you will likely receive a significant investment, as well access to expertise and mentorship. A potential drawback of this funding is the relatively tight timeline with which venture capital funds seek a return on investment, in addition to profit.
7. Check Out Government Sources
Depending on the nature of your business, you may be eligible for provincial or federal government funding programs. These can be sizable injections of cash, but they take plenty of preparation. Whether you apply for a business loan or a grant, make sure you have a business plan and financial documents ready for review.
8. Ask Your Bank
The local bank used to be the first stop for startup companies seeking capital. Banks have access to large investment funds and can fast-track money, where necessary. Be prepared, if you plan to approach your bank for a startup loan, you will likely need a comprehensive business plan and financial documents ready on hand.
9. Consider Crowdsourcing
In recent years, a new source of grassroots investment capital has been made available to entrepreneurs through online crowdsourcing. If you choose this route, you will need to develop a strategic pitch in order to draw attention and funding to your idea. Investors can choose to donate to your business—if they simply like your idea and want to support it—or they can invest in exchange for products / services or future investment growth.