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8 Viable Funding Sources for the Startups!

What is Startup Funding?

Startup funding is the money (capital) needed to either launch a new business (idea to MVP) or to scale an existing business for growth.

Why do Startups Raise Funding?

Broadly, funding is required by startups as it allows them to:

Why do Startups need to Raise Funding?
  • Develop/Bring a Product/Service to Market: Startups require funding to research, develop and launch their product or service. This can include costs such as product development, prototyping, testing, and manufacturing.

  • Hire/Build a Team: Startups require funding to hire employees, such as engineers, marketers, and salespeople, to help run the business and build the product or service.

  • Market/Promote the Business: Startups require funding to market and promote their product or service, including costs associated with advertising, public relations, and creating a website.

  • Scale the Business: Startups require funding to scale the business, including costs associated with increasing production, expanding sales and marketing efforts, or building new infrastructure.

  • Meet Regulatory/Compliance Requirements: Startups may need funding to meet regulatory and compliance requirements such as obtaining permits, certifications, and licenses.

  • Fund Ongoing Operations: Startups may also need funding to cover ongoing expenses such as rent, utilities, and other operational costs while they work to generate revenue.

  • Overcome Cash Flow Gaps: Startups may need funding to overcome cash flow gaps that may arise while they are waiting to be paid by customers or while they are scaling the business.

  • Support Growth and Expansion: Startups may need funding to support growth and expansion efforts such as opening new locations, hiring more staff, or making strategic acquisitions.

  • Manage Risks: Startups may need funding to manage the risks that come with starting a new venture.

So to summarize, startup funding allows the founders/entrepreneurs to develop their product/service, build a team, market and promote their business, scale their business, meet regulatory/compliance requirements, fund the ongoing operations, overcome cash flow gaps, support growth, and expansion (through acquisition), and manage risks.

How do Startups get Funding?

Funds can come from a variety of sources, and although the media is often buzzing with Venture Capitalists and Angel Investors, these are just 2 sources of startup capital.

Here are the 8 most widely sources that founders or entrepreneurs use to raise funding:

8 Viable Funding Sources for the Startups!

1. Self-funding aka Bootstrapping

  • Using your own personal savings to launch a business is the most accessible form of funding, as you don't have to rely on others.

  • Earning money through a side hustle to fund the business.

  • ~80% of small businesses rely on their founders personal savings for their initial capital needs i.e. launching their business (EU Startup Monitor report 2018).

2. Debt Loans

  • Taking out a loan on a credit card is another source widely used to launch a startup.

  • Bank loans are a great option for those startups that already have some momentum/traction.

  • These are the loans, where you pay interest and do not part with the equity.

3. Friends and Family

  • Raising money from friends and family members. These are the people who believe in you, and thus don't have to convince them hard.

  • However keep it thoroughly professional, and ensure they are aware of the inherent risks associated with it.

  • Some founders avoid this route, as they don't want to risk their personal relationships.

4. Grants

  • Applying for government grants to fund innovation or specific projects or aspects of the business.

5. Crowdfunding

  • Raising money from a large number of people, typically via the platform.

  • It's much easier for entrepreneurs to fund their product launches or get pre-orders via crowdfunding.

6. Incubators and Accelerators

  • Participating in programs that provide funding, mentorship, and resources to startups in exchange for equity.

  • Corporations also run strategic innovation programs to fund the startups that can help them for growth.

7. Angel Investors

  • Seek investments from high net-worth individuals, who put in their investment (usually pre-seed to seed) across several startups.

  • Typically, they earn high returns (10X-20X) through an exit in the later years.

8. Venture Capital

  • Obtaining funding from venture capital firms that are known to invest in startups that are usually high-risk, and have the potential for exponential growth.

  • Their goal is to leverage huge returns (100X+) usually in the form of an acquisition of the startup or during the IPO.

  • Struggling to Raise Funding? Click here for expert assistance!

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