Do you have a concept or business idea that you want to turn into a reality? For most people, raising the initial capital to launch a business is a difficult obstacle to overcome. Thanks to innovations in financial technology there are new funding methods that can help you take your business or product to the next level. Here’s a breakdown from crowdfunding platform, Indiegogo of a few different ways you can fund your business.
One of the most common ways to fund a business is a loan, which you can obtain through your friends, family, or more traditionally, a bank.
It’s a great idea to tap into your personal network in order to raise funds as it doesn’t require the formal paperwork that getting a loan from a bank does, and it’s much easier and faster. However, it takes years to build a strong relationship and trust with a person before you can ask for a personal loan, and straining your relationship is a major risk.
Banks, on the other hand, can give you a loan with a fixed interest rate and clear conditions, which in many ways makes the process of returning the money simpler. Banks are also generally less interested in your day-to-day decisions and more interested in getting a return on their investment. However, getting funding from a bank loan takes a lot of paperwork and proof of the viability of your business. Banks don’t like taking risks, so they will always want to see a business and funding allocation plan, and proven history of your sales before they consider funding you. For many early stage start-ups, it’s difficult or even impossible to fulfil all of these requirements
2. Angel Investors
Angel investors are individuals with private wealth who invest in businesses in exchange for a percentage of equity. Instead of making any regular payments or paying interest, they will make money only if you do. The process of finding an angel investor for your business venture is actually less daunting than you might think, as long as your pitch and growth plan are realistic and you’re ready to give up a share of your business. Besides simply providing money, they often help you establish valuable skills and connections that you wouldn’t be able to tap into without them. Because they are often seasoned entrepreneurs, or have worked with many other entrepreneurs, they are more likely to understand the timeline you might be working with.
Just like with any relationship, you want to ensure that you are comfortable working with a particular angel investor before making a commitment. Angel investors take part ownership in the company, so they will have some decision making power as you build your business and you will not have total control of your venture.
3. Venture Capital
Unlike angel investors, who are private individuals, venture capital firms usually only fund products that have the potential to grow into a large business and thus provide a large return on investment. A venture capital firm generally offers access to an exclusive and influential business network, and can mentor you through the process of growing your start-up, which can help take your business to the next level.
On the other hand, in order for a venture capital firm to invest their time and resources in your business, they want to see a substantial amount of financial return. Usually, they will take a chunk of equity in exchange for their involvement, and be involved in your major business decisions.
With crowdfunding, you’re directly going directly to ‘the crowd’, or public, to raise money for your business. In addition to raising funds, you can also scope out the popularity of your idea, and get some word-of-mouth marketing. In this way, crowdfunding allows you to validate your product before you manufacture and start shipping it. Moreover, you can get valuable feedback and advice from your target audience as well as keep the reigns on your business’s creative direction and ownership. If you’re interested in raising funds using crowdfunding, here are some tips that you can follow.
Although crowdfunding might seem like an easy task, you need to invest a lot of time and effort if you want to be successful as there are many elements involved in a crowdfunding campaign. You need to ensure that you put together a great team, create a detailed campaign story with both text and video, establish an engaging social media presence, and build a great community database to increase your chance of being successful. Despite your best efforts, there’s no guarantee that you’ll reach your funding goal if your product or business isn’t as innovative to your target audience as you might think.
If you have a great business idea and you’re ready to turn it into a reality, it’s important to understand as much as possible about the various financing options available to you before you take the plunge and commit. Regardless of whether you choose to raise funds through a loan, angel investor, venture capital or crowdfunding, ensure that you’re comfortable with the method you choose, as well as the idea of potentially giving up some equity or control of your business.