When it comes to funding, startups are considered high risk. This is because they are not creating any revenue. This can make quite it hard to secure funding for your startup from an investor. That said, there are some funding models that startups can use to get their project off the ground. Some of these models include: Bank loans, angel investing, venture capital, and equity crowdfunding. These different models all have their own unique way which makes them more suitable for a startup’s needs and goals.
Let’s have a look at each of them, shall we?
A bank loan is usually given to people who are seeking funds for their businesses, which they cannot get from other sources. Now don’t get this confused with a payday loan. They are much smaller.
These bank loans come with some requirements and one of them is that the person should have a good credit score. So the startup owner needs to get his / her credit score up before they can apply for a loan.
This type of funding can be used by entrepreneurs who are seeking funding for their startups or are looking into expanding their company’s operations within certain markets. Although not common, if you do end up getting rejected from your bank, you can always try others.
Definitely some good options here for the first-time startup entrepreneur. Plus who knows, your startup just might lead you to becoming financially free.
Angel investors are high net worth individuals who provide funding in the early stages of a business for seed or start-up investments.
They are individuals who invest their own money in smaller, more speculative ventures when no other financing is available. They are also called “angel investors” because they are often seen as good luck to the businesses they invest in. As a startup, you should have some kind of system to track all of the equity you are giving to investors. Check out these cap table tips for startups to find out more about managing your equity.
The profile of the angel investor has evolved over time. They have become more professionalized and selective about where they put their money into.
Today these guys and gals invest into anything that can help them get a solid return. Most of them love starting businesses themselves and that’s why they really enjoy getting involved in the whole process of it.
Venture capital is a type of funding that is used to help entrepreneurs and their startups grow, and develop. This is due to direct coaching that you may or may not get from the VC.
It can be difficult to get venture capital funding for a business, but it's made easier by having a strong team and concrete goals for growth.
The venture capital process can be broken down into many parts but the only thing that most VC’s care about is scaling.
So what does scaling mean? Scaling means taking what you already have and expanding it on a larger scale. It can be either about an increase in customers or an increase in your team, which will help you work more efficiently.
When it comes to scaling your business, there are many ways by which you can do so. You could hire more staff or buy new equipment or any number of other things. The thing is, if you are not careful about how you go about scaling your business, then there is a chance that it might fail altogether. VC’s love businesses that scale aka grow.
The process of starting a company is exciting, but at the same time it can be very challenging.
So make sure you are working with a VC who also has some business background. As it only helps.
Crowdfunding has always been an interesting marketing strategy for startups. It enables funders to get early access to products and services by paying in advance, and the company gets the necessary funds to start production.
The concept of equity crowdfunding presents a completely new model that is based on “equity” instead of cash.
Although this can vary, the whole idea about crowdfunding is getting a whole bunch of people involved which will help you raise the funds, and provide the investor some ownership percentage.
So if down the line, you do end up selling the company for millions or billions, everybody wins.