Top 5 Ways to Finance Your Start-up
Starting a new business or introducing a new product or service in the market requires capital investment. Capital is the bloodline of any business, whether small, established, or start-up. While established businesses can easily raise capital, the start-up founders struggle to accumulate funds no matter how powerful their business ideas or models are.
Initially, start-up founders rely on their own capital or borrow money from friends or family, but there are other effective ways to raise capital that one must be aware of.
Wondering what are the ways to finance a start-up? Stay tuned.
- Angel Investors
Angel investors are high-net-worth individuals who provide funds to promising start-up companies in exchange for equity or royalties of the business. Here, the percentage asked for equities may vary from one investor to another.
Angel investors are involved at the early stage of a business, usually at the ‘seed’ or angel funding phase. These investors can invest as individuals or a group, collectively reviewing and examining a business before investing in it.
The investment made by angel investors is a one-time investment that helps businesses take their first step, i.e. start the business, or it may support an ongoing business through its difficult stage.
Angel investors, also known as angel funders, seed investors, and business angels, work with a high-risk and high-reward investment strategy. If a start-up fails, it can end up in a huge loss for investors. On the other hand, if the business idea works, it can result in an enormous profit. The favourable terms and ease of availability make angel investment a viable and first preference for start-ups founders.
- Venture Capital
Start-ups appear in the competitive business arena with robust business ideas and models and require money to convert those ideas into successful products. To meet this capital demand, budding businesses can opt for Venture Capitals.
Venture Capital is a type of financing that an investor offers to start-up companies with the potential to show long-term growth or companies growing rapidly and requiring more money to expand.
Venture Capitalists invest money at different stages of a company, including an early or seed stage and release funds at once or rounds in exchange for equity in the company. These investors or firms raise money from banks, funds, corporations. While investing in any start-up or business, they thoroughly investigate the submitted proposal, concerning the company’s business model, management, product, and other things.
Budding businesses willing to finance a startup through venture capital must remember that VCs have the power to influence decision making or monitor business progress before providing additional funds. Further, they can guide budding businesses to ensure profitable growth.
Venture Capital firms may cease to fund after 4 to 6 years after the initial investment through merger, acquisition or Initial Public Offering.
- Start-up Business Loan
Funding and cash flow are essential for every business. A budding business needs capital to start the business and maintain daily operations smoothly. For this, they can rely on various financing options. One such effective funding solution is a start-up business loan.
A start-up business loan, such as invoice discounting, is a type of financing offered by financial institutions to new businesses or those who are willing to start a new one. Entrepreneurs can utilise these funds for various purposes, such as purchasing or upgrading equipment, raw material or managing expenses to set up a business or lease a building.
Further, a budding business can opt for an additional financing option by integrating the Buy Now Pay Later (BNPL) solution. The BNPL Solution offered by KredX is an alternative credit option to the traditional credit-based instrument. Here, start-ups can sell their products to customers and get instant payment against the products sold, while buyers get the flexibility to pay later within a specific date. Thus, start-ups can resolve working capital challenges and build an enhanced customer relationship from the very beginning.
Wondering about the hassles of integrating BNPL through KredX? Start-ups can easily integrate the service while paying and ensuring consistent cash flow.
Another popular way to finance a startup is opting for crowdfunding. As the name suggests, a crowd or a large number of people are involved in co-funding start-ups or projects.
Here, entrepreneurs can benefit from several individuals and other institutional investors through a trustworthy crowdfunding website.
These financing options enable budding businesses to gather funds and promote products or services. Remember, to get crowdfunding, start-ups need to set up a campaign, i.e., create a profile on a crowdfunding site, describe the company and the amount of money one is likely to raise.
Campaigning is an excellent PR tool that can create a sense of urgency for investors, and interested persons can consider investing in promising business ideas. Crowdfunding can be of various types, such as Reward-based Crowdfunding or Equity-based Crowdfunding. In Reward-based Crowdfunding, start-ups avail funding by offering some products or services or by providing a discount without giving away equity. On the other hand, in Equity-based Crowdfunding, start-ups have to sell stocks in exchange for cash. Start-ups can choose crowdfunding options as per their preference.
- Incubator and Accelerator
Start-up founders looking for funds can turn to Start-up Incubators or Accelerators. They help budding businesses achieve success.
Start-up Incubator offers entrepreneurs the basic opportunity and facilities, such as providing physical resources and mentorship to acquire real customers. To avail these facilities, start-ups must go through an application process that may vary from one program to another. However, most incubator programs include a comprehensive business training program, information/educational sessions, industry mentors, keynotes, and networking events.
Start-up Accelerator is a short-term program in which budding businesses get both financial support (at early stages) and training and mentorship. Further, entrepreneurs can introduce themselves to global networks with other businesses and gain traction in the real market. Remember, start-ups have to go through an application process similar to that of Startup Incubator.
Raising funds for start-ups can seem troublesome as traditional lenders prefer funding established businesses with a proven history of success. In such cases, budding businesses can opt for various popular alternative financing options, raise capital and convert innovative business ideas into actual products or services. Further, entrepreneurs can finance a start-up by integrating the Buy Now Pay Later (BNPL) credit facility from KredX and ensuring cash flow to the business.