Starting your own business can be one of the most exciting yet challenging experiences of your life. Registering your company, finalizing your logo, and drafting your business strategy are the basics of running your business.
The most crucial problem new businesses face is the lack of funds and investor capital, which prevents them from making their business a success. Even if you have an established business, lack of adequate funds might be an obstacle for you to get more business deals.
So, where to get funds to do your business?
Fortunately, there are several ways you can get funding for your entrepreneurial ideas.
To make your business a success and to get more deals, you must finance your idea with any capital that is at your disposal. Around 77% of startups fund their ideas with their capital. This could be your personal savings, crowdfunding, your friends, or your family.
This step is vital for your business as it gives you a clear idea of how your business is reacting to the market and how much funds will you require to turn this business into a unicorn.
If you are aiming to rapidly scale your business, it would be better to choose external funding which meets your capital requirements.
These types of investors are established high net worth professionals who are actively seeking profitable investment opportunities. Angel investors invest in promising ventures and obtain share capital at an early stage.
So, you have done your pre-seed and angel funding rounds, well done! But now you require more funds to take your business to even greater heights. Enter the world of Venture Capital.
Venture Capitalist or VC is a type of private equity firm that invests in startups and emerging companies. VCs rely on pools of funds from investors and usually do not prefer to hold share capital for a long period.
VCs require high investment returns, usually 3-10 times in a matter of a few years from the companies they invest in and hence, your idea must be sustainable enough to provide such returns on investments (ROI).
Once you are past the Angel investment rounds, it can get easier to find Venture Capital firms and pitch your ideas. These firms conduct their due diligence and in-depth audit of your finances to ensure that they are investing in the right startup.
Just remember to keep your finances strong, your pitch stronger, and your business plan visionary!
Although debt is the cheapest of the options available to a startup, it is not the ideal one. The biggest reason for this is that large amounts of debt require collaterals which is difficult for a budding startup to present.
Secondly, defaulting on debt payments makes your company liable to damages. In Equity-based financing, this is not the issue as the investors are technically partners. Furthermore, with debt-based financing, you do not get the expertise and guidance of investors and professionals available to you in Venture Capital financing.
But if the investment horizon is short and the amount manageable, then the debt would be the preferred option. Many banks offer traditional bank loans to small and medium-sized enterprises (SMEs) which can range from $5,000 to $500,000.
Ready to Scale Your Business
Getting the required funds for your business can be a daunting experience. More than 90 percent of startups failed in 2019, and lack of funds was one of the biggest reasons.
Therefore, it is important to draft your business plan and identify your funding requirements beforehand. Investors require a promising and return generating business idea which will provide them ample profits in the least amount of time.
It is a long road to success but taking the required steps can help you reach your destination faster. Try to fund your idea yourself initially as this will set up a good example in front of the investing parties later on in your journey. Find the relevant investors and get adequate funding to make your idea soar above the clouds.
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