There’s no clear-cut path to funding a startup. Many startups struggle with funding, and most begin by seeking initial investments and loans from friends and family. You’ll likely have to rely on multiple sources, including yourself (the majority of startups are self-funded) but luckily there are more options than ever before. Check out these methods to start planning your startup’s funding future.
Crowdfunding has become an increasingly common way for startups to earn money and gain a following in the process. Individuals can pledge money for either equity in a company or rewards. If tech companies cannot offer a physical product, possible rewards can include branded merchandise, special features to an app or platform, access to beta testing and invitations to the launch party.
The startup-specific crowdfunding platforms are numerous—Crowdfunder, Seedrs, Microventures, Seedinvest, et cetera. Some platforms allow you to keep any money you raise, while others only succeed if your campaign’s funding fulfills the predetermined goal. A little research will allow you to find the platform that will best serve your needs.
- Angel investors and venture capital firms
Angel investors and venture capital firms are conventional methods for funding businesses. Angel investors generally work on a smaller scale than venture capital firms. They fund startups in the early stages using their own money and occasionally offer their expertise, although more often than not they don’t interfere with the startup’s operation or trajectory. Venture capital firms, on the other hand, comprise professional investors who are concerned with a business’s growth and a high return on investment. They take shares in the company and provide larger amounts of money. Venture capital directories and good old-fashioned networking are your keys to finding investors.
- Peer-to-peer lending
Peer-to-peer lending (i.e. a crowdfunded loan) allows you to borrow money without giving up equity or rewarding pledges. Lending Club and Prosper are two of the leading P2P marketplaces that help connect lenders with borrowers. Like normal crowdfunding, this method can help build a following of supporters and adds a little flexibility to the borrowing process.
Finding a grant for which you are eligible and composing proposals can be time-consuming, but the upside is that the money is yours and does not need to be repaid. The Small Business Administration runs two federal grant programs—the Small Business Innovation Research and Small Business Technology Transfer Program—which both reserve funding for technical innovation.
Though the government may be the first thing that comes to mind when you hear the word “grant,” but there are also private sources to consider when searching for grant money. The Amber Grant Foundation awards either $500 or $1000 to women-owned businesses, and the Eileen Fisher Women-Owned Business Grant awards funding to business owners focused on implementing social or environmental change.
- Incubators and accelerators
While money at any stage of a startup’s development is vital, good advice is invaluable. The benefit of working with incubators and accelerators is their guidance: they provide both money and mentorship. Organizations such as Y Combinator, AngelPad and TechStars offer consulting, networking events, “demo day” presentations to investors and more to startups of all sizes. The competition for securing a place in mentorship programs is fierce, but well worth the effort.