• iReport team

Getting Funded: How Startups Can Effectively Get Capital



Funding a business idea is one of the biggest challenges for entrepreneurs. It doesn’t matter how big you want your company to be in the future. You need to first amass enough capital to cover all costs involved in running your proposed business.


Below are some of the options you can explore to raise capital for your new business.

Bootstrapping


Self-funding, or bootstrapping, is a common method of financing startup business ideas. It involves using your own savings as capital. Approaching friends and family for help, especially without any equity in exchange, also falls under bootstrapping.

Since first-time entrepreneurs can have a harder time getting external funding assistance, bootstrapping is an effective method to fund a smaller startup faster.

Bank Loans


Bank loans and business lines of credit is the most traditional way to get your business funded. These are also one of the hardest avenues you can explore. Many banks require at least two years of tax records to prove that a business is viable before they provide loans or lines of credit.


When it comes to debt financing, it is generally better to seek microloans through the U.S. Small Business Administration.


External Funding Rounds


Startups that require a larger capital right from day one are more likely to not get enough funds through bootstrapping and loans. If you find yourself in this situation, then the best way to get enough capital is through external funding rounds.


This means opening up your budding company to outside ownership stake. In exchange for investors’ financial assistance, you provide them with an equivalent amount of equity in your startup.


Crowdfunding

Crowdfunding is one of the most popular ways to crowdsource funding today. Thanks to online platforms like IndieGogo, GoFundMe, and KickStarter, startups can get funding by appealing to the public.


Crowdfunding through such online websites is also a less traditional fundraising method. Instead of offering company shares or stocks, some smaller startups choose to offer other perks, such as the product their venture will be developing.

Angel Investors and Venture Capitalists

More traditional fundraising methods involve angel investors and venture capitalists. Many well-known companies today were startups that successfully raised capital through several rounds — starting from pre-seed and seed funding to Series A, Series B, and Series C funding rounds.


Angel investors are sometimes referred to as “seed” investors. They are often the first investors in startup ventures. These are wealthy, established individuals who use their own capital to help fund startups during their earliest stage of development.


Meanwhile, venture capitalists are firms rather than individuals. They are fully-staffed organizations that generally provide funding not just to promising businesses but to those that have passed the initial stage and already have a good track record.


Angel investors often take on more risk and help startups during their seed funding stage. This stage helps finance efforts like market research and product development.


Traditional venture capitalists often get involved in startups’ fundraising efforts during the Series A or even Series B stage. Some popular venture capitalist firms that help out startups during their Series A fundraising are Google ventures, Intel Capital, and Sequoia Capital.


The Bottom Line


There are several ways you can get the funding you need for your business. You don’t have to rely on just one, either. In fact, the majority of startups rely on a combination of these sources, particularly bootstrapping, crowdfunding, and venture capital funding.

Having a good foundation is key to getting funded externally. If you want outsiders to invest in your startup, you need to prove that your idea has value in the market.