So, you want to be an entrepreneur? You’ve got a product and a business plan, and all you need now is some money to get the idea off the ground. If you have a good understanding of your financials you should be able to calculate reasonably accurate projections. This is a very important step in the process. According to a 2018 study by CB Insights, 55% of startups fail due to money issues. Of that figure, 29% run out of cash, 18% struggle with pricing or cost issues, and 8% never acquire funding at all.It’s important to get a good start.Some are comfortable with self-funding strategies while others aim for the skies and think they can get a windfall from a venture capital (VC) firm. Yet, that’s often not the case. “Some entrepreneurs believe that a disruptive concept and a sound business model are enough to secure an initial round of funding from VCs,” explains Jack Tai, CEO of OneClass. “[Yet] most VCs won’t even look at deals that early in the process, so founders in pre-revenue and minimal-revenue stages often turn instead to friends and family for their first investments.” Here is How to Fund Your Startup!
Where Startups Get Funding
Friends and Family: Turning to friends and family is a good way to check the marketability of your product or service. After all, if your own family isn’t willing to invest in your idea maybe you should rethink it.
Bootstrapping: Then there’s self-funding (or “bootstrapping). Relying on your own money or a personal loan or a credit card you don’t give up control of the company or equity to VCs, but when self-funding it’s important to maintain a steady cash flow and make sure you don’t run out of money.
Bank Loans: Lastly, there are bank loans, specifically loans guaranteed by the U.S. small business association (SBA), which have decent interest rates and relatively low down payments; however, they do often require personal assets as collateral. Since this is purely debt-based funding you don’t have to worry about allocating ownership to other investors, such as venture capitalists.
Angel Investors: Through angel funding, wealthy individuals provide their own money for a limited equity stake. While the investments and returns are usually less than VC funding the entrepreneur retains control of the company.
Accelerators: Business accelerator programs can provide some seed investment at a cost. In exchange for their money, and usually some operational support through their accelerator program, the startup often has to give up significant equity.
Crowdfunding: An increasingly popular method for raising money, crowdfunding platforms such as Kickstarter offer users a means to invest in companies, often in exchange for a variety of prizes.
Venture Capital: Lastly, there are venture capitalists. VCs seek out opportunities for good returns and invest capital in exchange for equity. Typically, they look for startups with a 15% growth rate or more and revenues of $100,000 or more, but that’s just the beginning. Be sure to choose wisely among VCs. You’re giving up an equity stake in your company in exchange for their money, so you’re also giving up a fair amount of control over your own future. What’s more, many VCs expect rapid growth toward an exit within five years. Does that match your own growth plan?
For SaaS Founders, there is another option. How to Fund Your Startup: Bigfoot Capital has created a funding platform for growth-stage SaaS companies that provides necessary capital without all of the shortcomings of venture capital. Find out how at BigfootCap.com.
