Need to Fund Your Business? Funding Sources Variations Analysis

Need funding for your startup? There are several options to consider. You’ll want to familiarize yourself with them. If you struggle to understand the options available to you, you’re not alone

Let’s summarize the options one has.

1. Bank loans and startup incubators

Usually, the first step for startups and other businesses is a bank loan. Depending on your local regulations and bank type, the requirements will vary. As well as, conditions. Make sure you are eligible to apply. You will need to conduct your own research (or alternatively hire a researcher) and analyze available options. Most often, you will be requested to provide a business plan with proper financial forecasts. Standard financials are required. Be aware that the standard for US and EU applications will vary. Be sure to request requirements prior to start.

We have included start-up business incubators at the same point. At first, it is an evolution of bank funding, the difference will be in process and need. Depending on the fund you’ve chosen to go with, they might have their own template of the business plan required. And each of incubators has own process. Most often you will be expected to commit a significant amount of time to the training process, boot camps, etc. Thus, if you are not ready to commit this time, you will have to skip this option.

Other pitfalls — the incubator will get up to 20% equity in case you are funded, even if you have gone through all training there is no guarantee.

2. Venture capitalists

Another evolution of bank loans. You will give up % of the equity for the money. Venture capital companies vary by region and have their own expertise-some will work with various industries, and some will involve one or two specific industries.

Bear in mind that these companies receive hundreds of applications. You need to have a mediator — dedicated person who can put you in direct contact or have a network to send your pitch to.

At first, you will need a simple business plan with proper market research, strategic plan and financial plan.

3. Angel investors

Similar to Venture Capitalists, angel investors will often ask for %. Moreover, angel investors often choose not to participate in strategic meetings and decisions. Which has become one of the biggest obstacles and fears of startups?

If you are not sure that you are ready for your AI to influence what you do and have his or her strong saying into the final decision making, you can skip this option. However, this is a good opportunity because it is not as formal as bank loans and venture capital.

What will you need is to find an angel investor whom you can trust and who is interested in your project, industry and impressed by your plan? Make sure your financials are intact and your strategic vision is strong and well-researched.

4. Personal/family/friend funding

Nowadays, it is very common to fund your project yourself or to raise funds with family and friends. Most often no one will ask you shares, but you are risking relationships when you mix family, friendship and business. Very often it is your silent investment.

Another risk is when you fund it yourself. Entrepreneurs often mistake a false sense of safety and become less active in building their business. In the process, they fail themselves and lose money.

5. Crowdfunding

Crowdfunding has a few options, and it is very popular even in today’s commercial projects. Crowdfunding is divided into three types: based on rewards, based on donations and mixed.

Reward-based is the level where you have a fixed investment amount (to be repaid with the product that will be produced later), depending on the contribution amount, the return will vary.

Donation-based in bakers will not receive anything in return but might as well receive a thank you message. The mixed CF is clear from the definition — a combination of reward and donation based. For example, bakers under $100 receive a thank you letter and $350+ tiers will receive a piece of produce as first clients in the waitlist.

We have not included grants into this overview, but, as you can imagine, the process has its’ own specifics too.

Whatever you plan to do, make sure you are fully prepared to meet your choices-feasibility studies, research, testing, business plans, marketing platforms-creative, smart and memorable. You need to be able to disrupt the status quo of others who are competing for your funding.

Other materials and tools will be available in April 2020:

We’re here for you, #strategicchangeguide

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