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Are you thinking to set up your startup idea? Well, congratulations for your brilliant startup idea!
Now, to raise fund for your business would be the most intimidating thought in your mind. Don’t you worry. Here is a guide to teach you about the ways to raise funds for your startup.
It’s not easy to take your business off the ground. If you want to start your own business but don’t have the funding, you can still get it off the ground in a number of ways.
Create A Detailed Business Plan
Before doing anything you need to have a clear plan of how you are going to run your business. Different types of investors will need to see your financial projections before they consider investing in the business.
Your business plan should have a clear description of your business. It should also include a market analysis, including research on your competitors. Include financial plan for next 3-5 years. Make sure your financial projections are realistic. It is not necessary that you turn a profit on your first year. It’s okay to have profitability in next two three years.
Conclusively, a good business plan will set you up for success.
Try Applying In Your Local Bank
Since you might have personal banking account in one of the local banks, you have a relationship with the bank. Set up an appointment with a loan officer. Present your business plan in a detailed and professional manner. Explain to the loan officer how much money you need and what it will be used for.
Depending on your situation, you may qualify for loans for certain aspects of your business, such as equipment. Do not quit if your first appointment was unsuccessful. Try in other banks and institutions.
Venture capitalists (VCs)
Venture capitals are professionally managed funds who invest in companies that have huge potential.
VC firms invest in the early stages of your company in exchange for an equity share. VCs provide expertise, mentorship and acts as a litmus test of where the organisation is going, evaluating the business from the sustainability and scalability point of view.
VC funding largely depends on your industry. If your startup company is a local coffee shop, you probably won’t have luck with VCs. They are typically drawn to startups within software and technology sectors.
Angel investors are individuals with surplus cash and a keen interest to invest in upcoming startups. They also work in groups of networks to collectively screen the proposals before investing. They can also offer mentoring or advice alongside capital.
These investors can be entrepreneurs or former entrepreneurs themselves. So, if you find the right angel investor, you may benefit from their expert advice and management skills.
They may simply like your plan, trust your goals, and believe that your business will be successful. That’s why it’s important for you to be able to articulate your business plan well.
Friends and Family
These are the people who trust you the most. So taking loan from them can be less difficult. And sometimes, you might even get funds as a gift.So talk to your parents, siblings, grandparents, or even your rich uncle.
There are benefits in taking loans from them such as you don’t have to return money in a particular period of time. But there can be possibility of situations which can spoil your relations.
But some entrepreneurs share that loans from their family contributed to their success because they had extra motivation to not lose the investment. They didn’t want to let their loved ones down.
You can use crowdfunding websites to raise capital. Crowdfunding is one of the newer ways of funding a startup that has been gaining lot of popularity lately. This is how it works:
- An entrepreneur will put up a detailed description of his business on a crowdfunding platform.
- She/He will mention the goals of her/his business, plans for making a profit, how much funding she/he needs and for what reasons, etc. and then consumers can read about the business and give money if they like the idea.
- Those giving money will make online pledges with the promise of pre-buying the product or giving a donation.
If your project is promoted properly, you can raise a ton of money.
The best thing about crowd funding is that it can also generate interest and hence helps in marketing the product alongside financing. It also might attract venture-capital investment down the line if a company has a particularly successful campaign.
If you’ve got money saved up, you could use it to launch your business instead.
It’s risky because you won’t have any money to fall back on if your business is unsuccessful. But there are positive factors also to it.
- You don’t have to give up any equity in your company.
- You get to keep all the profits instead of sharing them with investors.
- You also don’t have to pay any interest on a line of credit or bank loan.
Try to minimize initial business costs. Instead of paying for an office, you could work from your home or a shared office space. Use cost-effective materials. Go for quality instead of quantity.
Starting a new business is exciting. But it’s not cheap. Try to come up with realistic financial projections. Also need to keep all your costs as low as possible to make your funds last until you can get a steady income stream. Hope these steps might have helped you plan your finances ahead.
Best wishes for your startup!