The Top 5 Ways to Raise Money for a Startup
How To Raise Money For A Startup
If you’re a founder who wants to know how to raise money for your startup, then you are not alone. The early stages of starting a business can be rocky, and funding is no exception. What do you do before you’ve reached the “early-funding” stage, but your business needs funds now to continue to grow?
There are several ways for very-early-stage startups to secure money including crowdfunding, angel investors and venture capitalists, small business loans, government funding, discounts, and sponsorships. Continue reading to better understand your options if you’re part of an early-stage startup that could use a financial boost.
1. Start a Crowdfunding Campaign
Crowdfunding has become an increasingly popular method for businesses to secure funding and build a customer base. As a business owner, it’s important to understand the various types of crowdfunding campaigns available to you.
Business-to-Business (B2B) and Business-to-Consumer (B2C) crowdfunding campaigns are the most commonly utilized types. These campaigns allow businesses to pre-sell products or services to customers before launch, and secure funding through non-equity crowdfunding portals such as Kickstarter and IndieGoGo.
Equity crowdfunding and decentralized crowdfunding are also options for businesses looking to secure funding. However, it’s important to note that these types of campaigns may have different regulations and compliance requirements.
When considering a crowdfunding campaign, it’s essential to carefully evaluate the type of campaign that best aligns with your business goals and the audience you’re trying to reach. The type of campaign you choose will have a significant impact on your ability to successfully secure funding and build a customer base.
Business-to-Consumer (B2C) Crowdfunding
Business-to-Consumer (B2C) crowdfunding is a powerful strategy for businesses looking to build a customer base before launching their products or services. Crowdfunded pre-sales allow businesses to secure funding and gain valuable insights about customer demand and preferences.
Platforms such as Kickstarter and IndieGoGo have proven to be highly effective in facilitating B2C crowdfunding campaigns. These platforms serve as an advertising platform to prospective investors and a non-equity crowdfunding portal that allows businesses to pre-sell products or services to customers.
Kickstarter and IndieGoGo have a huge audience of potential investors and customers and they are widely known and trusted by the public. These platforms are also a great way to create buzz and generate interest around your new product or service.
In summary, B2C crowdfunding is a valuable strategy for businesses looking to secure funding, build a customer base, and gain insights into customer demand before launching their products or services. Platforms such as Kickstarter and IndieGoGo are proven to be effective in facilitating successful B2C crowdfunding campaigns.
Kickstarter
Kickstarter is a widely recognized and reputable crowdfunding platform for Business-to-Consumer (B2C) businesses. The platform has a vast audience of potential customers who are looking to acquire the latest and greatest consumer gadgets, games, and other relevant products.
As a seller on Kickstarter, it’s common practice to offer tiered rewards to customers based on their level of contribution. This not only incentivizes customers to contribute more, but also helps to create a sense of exclusivity and appreciation among early adopters.
It’s also worth noting that gadgets and wearables tend to perform particularly well on Kickstarter. This is likely due to the platform’s reputation as a destination for cutting-edge and innovative technology. As a result, businesses in these industries may find Kickstarter to be a particularly effective platform for their crowdfunding campaigns.
Overall, Kickstarter is a well-established and respected crowdfunding platform that can be a valuable asset for B2C businesses looking to secure funding, build a customer base, and gain visibility for their products or services.
IndieGoGo
IndieGoGo is a highly reputable crowdfunding platform that offers a wide range of products to its B2C customers. With the backing of over 9 million funders, this platform has established itself as a trusted destination for individuals and businesses looking to bring their innovative ideas to life.
One key advantage of IndieGoGo is that tech-based products, such as SSDs and monitors, tend to perform exceptionally well on this platform, making it an ideal choice for entrepreneurs in the technology industry.
Additionally, IndieGoGo offers a variety of unique perks and incentives for backers, including deluxe editions of games, merchandise, in-game voice-overs, extra hardware, bespoke merchandising, and even the opportunity to participate in beta releases and product launches.
Overall, IndieGoGo is a powerful tool for entrepreneurs looking to raise funds and gain exposure for their ideas.
Crowdfunding has become an increasingly popular and effective way for businesses to access the funding they need to grow and succeed.
Among the key advantages of crowdfunding is the ability to fill the “funding gap” that exists between the startup stage and early-investment stage funding. This allows businesses to bridge the gap between their initial funding and the next stage of investment.
Business-to-Business (B2B) and other Crowdfunding
Business-to-Business (B2B) crowdfunding is particularly valuable, as it allows businesses to establish strategic partnerships that can provide mutually beneficial opportunities such as supplier discounts, revenue sharing, and more.
Additionally, there are other types of crowdfunding opportunities available such as B2B loans and institutional loan crowdfunding, as well as partial acquisitions through equity purchase or partnership.
Platforms like StartEngine, SeedInvest, EquityNet, and Fundable serve as portals between investors and businesses, facilitating equity crowdfunding offerings and providing a valuable resource for businesses looking to access funding through crowdfunding.
Overall, crowdfunding is a powerful tool for businesses looking to raise funds, build strategic partnerships, and gain access to new opportunities for growth and success.
2. Get Investment from Angels or VCs
Accessing funding from angel investors and venture capitalists (VCs) can be a critical step for businesses looking to grow and succeed. Angel investors are individuals who provide small amounts of funding to businesses in their earliest stages, and are often willing to accept the highest level of risk on their investment. They are typically the first to benefit when a company successfully exits through an Initial Public Offering (IPO) or corporate buyout.
Perhaps even more valuable than their initial funding, angel investors often introduce startups they are invested in to other investors and advisors in their network, which can ease the process of raising later funding rounds.
Venture capitalists, on the other hand, invest in companies at various stages of development, from pre-seed to the exit process. Some VCs prefer to invest in earlier-stage companies, while others focus on later-stage deals due to reduced risk and larger deal sizes. VCs often receive funding from family offices, high net-worth individuals, pension funds and other entities that are looking to diversify their investments.
Overall, angel investors and VCs can provide a valuable source of funding and support for businesses looking to grow and succeed. Their guidance, funding, and networks can be a great help to startups and small businesses looking to raise capital.
3. Seek Out A Business Loan
When you’re just starting out and you have started to find a little bit of traction, a business loan can be a great option to accelerate your growth. If you’ve started making your first few sales, and your revenue starts to climb, it’s well within the realm of possibility that you can secure a small business loan.
The Small Business Administration (SBA) provides loan guarantees for banks that issue loans to small businesses in the US, covering as much as 85% of the loan value. As a result, one of the most common loans that small businesses take out, in the US, is an SBA loan — often an SBA 7(a) loan.
A 7(a) loan can be used for a wide range of things, including buying another operating business, working capital, expansion, etc. Despite circulating information, lenders cannot charge a separate origination fee on SBA loans.
The SBA’s site states that rule explicitly here along with the list of other prohibited fees.
SBA interest rates are normally tied to the prime rate with a percent markup over the prime rate (the lowest available interest rate that can be used for commercial loans.)
Example: “Prime rate + 3.25%”
Another common method of raising funds, for a business with some revenue and accounts receivable (AR) is invoice factoring. Businesses can often sell their unpaid, overdue invoices for ~70% of their total value. The lender then attempts to collect the full value of the invoices, and they receive the difference in value.
4. Accept Grant Money from Government Organizations
Governments often provide startup companies with funding in order to support innovation and entrepreneurship. Many organizations, such as the National Science Foundation (NSF), the United States Department of Agriculture (USDA), and the Department of Defense (DoD). In the UK, some grant-issuing bodies include UK Research and Innovation (UKRI) and the Royal Society.
These agencies issue billions of dollars per year to companies that are conducting research and development. Other grant opportunities are available across a broad range of countries and organizations.
5. Use Discounts and Sponsorships
While not the best option for every business, discounts and sponsorships can be a great way to garner more attention and exposure for your company. Both customers and prospective investors often look kindly to businesses that reinvest in their community. Meanwhile, customers often love to save money without sacrificing opportunities or experiences.
Sponsorships may be distributed through local schools and events, regional initiatives, or even business incubator and accelerator programs. Scholarships can also help ease the process of building relationships with potential advisors and investors.
Still have questions? Matthew has helped raise over $1Bn for startups since 2017 as a fundraising consultant. He once raised $60M is 6 days, and has experience in over 30 different verticals. If you want support in your journey to funding, he offers two options — private consulting with lots of 1-on-1 time and personalized refinement of things like your pitch deck, white paper, etc.
You can also join other startups in the FundHustle cohort. The next one starts February 6, 2022. Use code MEDIUM to get 30% off. Sign up here. (https://campaign.fundhustle.xyz/34528/fundraising-cohort/)
