A lot of people are choosing the entrepreneur life right out of college instead of finding a traditional job. People have ideas, and these startups are what fuel much of our economy. They’re important, but in order to propel these ideas forward, entrepreneurs need business funding.
Unless you happen to have a lot of extra cash lying around, funding is your ticket to the top. Well, it’s your ticket to a roller coaster ride on which you wear a lot of hats, make mistakes, and eventually, come to the end of what you hope is a successful and enjoyable ride.
The risks are great, but so are the rewards, and business funding is an integral piece of the puzzle. It’s important to understand how business funding works and why you need it if you’re going to throw your hat in the startup ring.
Failing to Secure Funding
New entrepreneurs fail to secure funding because, despite their great idea, they have poor execution. They can’t describe the problem they’re solving or convince investors that their product is needed.
To move from concept to product, you need to garner support from people who believe in your cause. You need a plan and a strategy. You need to do enough research to prove your idea is worth supporting.
With a great idea and a solid plan, the next thing you need to understand is the funding itself. Without the proper knowledge of how to get funded and which type of financing is right for you, you won’t know where to go or who to ask.
Funding Options
Let’s dive into the most common funding options among entrepreneurs. Armed with an education, you’ll be able to get your great idea and working plan off the ground.
Venture Capital
Venture capital funding is one of the most commonly misunderstood options. A venture capitalist is an investor or group of investors who give startups capital in exchange for partial ownership in the company.
It’s important that the company show a required rate of return in the first couple of years and venture capitalists ask for large portions of the company in order to exercise voting rights and decision-making power.
Venture capitalists aim to see the company go all the way to an initial public offering so they can sell their shares for a large profit. Reputable private investors of this nature can be found all over the world, but often have strict requirements for funding.
Angel Investors
While angel investors are similar to venture capitalists, they work with smaller companies and have a less business-like approach to funding. They nurture their companies and provide help and coaching.
Angel investors or angel groups are often comprised of former entrepreneurs with experience in raising capital and owning their own business. While they would like to see significant returns, they genuinely care about the success of the companies in which they invest and are more willing to offer advice and assistance.
Bank Loans
Local banks offer small business loans, and these are popular options. It’s often one of the first places entrepreneurs look when they need business funding. But business loans from your local bank can be slow, drown you in paperwork, and require you to offer your private assets as collateral.
Another option for small business loans is an alternative lender like quickloansdirect.com. They have online applications, require less paperwork, and often don’t ask for collateral. An alternative lender can get you financed very quickly, but you still have to meet a small set of requirements.
Private Funding
Family and friends are always an option. If you have minimal experience and can’t seem to get anyone at a bank or an angel group to give you the time of day, you may be able to turn to those closest to you who have a vested interest in seeing you succeed and want you to be happy.
Family and friends are one of the biggest sources of business funding among entrepreneurs. Just be careful if you choose to go this route and ensure that no matter what happens, your relationship isn’t damaged irreparably.
Exercise caution and make sure you don’t ask for money from someone who truly can’t afford it, but would do it for you anyway. You don’t want to be responsible for someone else’s financial hardship.
Self-funding
It’s not always fun emptying your savings for something that’s a big risk, but you have options like selling your home, taking out a second mortgage, using your credit cards, or getting the money from your personal assets in some other way.
You have the potential to damage your personal finances for years to come if you make any mistakes. So think long and hard about this option before doing anything drastic.
Crowdfunding
Crowdfunding has become increasingly popular in the last decade or so. There are many websites that raise money for all sorts of things from personal causes to startup companies. You can offer people incentives for giving you money, and you don’t have to award them ownership in your company. It’s unconventional but fun and exciting.
The more research you do, the more choices you’ll realize you have, and the better educated you’ll be to pursue them. With the knowledge that you need to fund your startup, you’ll be up and running in no time.
