You may have a great idea for a business and a well laid plan on how you are going to run it. But, then comes the most crucial part- that of startup funding. Every entrepreneur-in-making may think of how to raise funds for startup.
Everybody knows that you need the fuel of capital to run your business, especially when you are just starting out. A study suggested that most new businesses, due to lack of funding, fail in their first year of operation itself. Thus, you need to put in a lot of thought on how you are going to get your funds.
If you find yourself in a similar situation then you are at the right place. In this article, I’ll tell you how to get funding for startup. Here, we will also talk about the startup funding stages and how startup funding works.
The Ultimate Guide to Startup Funding
1. Bootstrapping or self-funding your startup- Pre-seed funding
Bootstrapping, or in other words, self-funding is one of the best ways of funding your startup. First-time entrepreneurs might have difficulty getting funds from investors. This is why bootstrapping is one of the best things you can do to fund your own business. Either you can invest using your own savings or seek help from friends and family and ask them to contribute. This works especially great if you don’t need a lot of funds.
If you think about it, bootstrapping actually has many benefits. Since you have put in all of your hard earned money, you tend to work harder and give in your all to your startup. You also save yourself a lot of time and efforts trying to convince investors why they should invest in your startup.
Bootstrapping as a way of startup funding can be considered if you have some funds saved. If not, there are always other ways to acquire funding for your startup.
2. Seed Funding
One of the startup funding stages is seed funding and it is the earliest stage of funding. It is also referred to as seed money or seed capital.
Seed funding is basically an investment that is made in a startup/ company in exchange for equity in the same company.
Basically, seed funding helps you get your business started before you start generating any revenue. This funding can cover every kind of cost ranging from infrastructure, development, marketing costs to initial hiring.
When talking about seed funding, there are multiple sources from where this funding can be acquired. Let’s take a look at them.
Crowdfunding is nothing but raising funds for your business from people or a ‘crowd’. The people investing in your business will do so for a profit or reward in return. It could either be on interest, a reward or in exchange for a small equity in the company. There are many online crowdsourcing platforms available.
- Corporate Seed Funds
This is a great way for startup funding. Giant companies like Apple and Google often help startups with seed funds.
Incubators are companies that help startups with services such as management training and office spaces along with providing them with small seed investments.
- Other ways to obtain this funding is through accelerators or angel investors.
3. Venture Capital
Another way of generating startup funding is through venture capital. Venture Capitalists invest money in companies that are small i.e. startups but have tremendous potential for growth.
A venture capitalist buys shares of a company and becomes a financial partner for the business. Rather than as a loan, funding obtained through venture capital works as an exchange of capital for an equity/ stake in the company.
If your startup has large upfront capital requirements, you can go for venture capital. There are various companies who offer this sort of funding. For this, you first need to submit a business plan. If the Venture Capitalists find your idea promising enough, an introductory meeting is usually held. And if all goes well, you might get funding for your dream startup!
It can be difficult for startups to acquire loans from banks but this option offers quite a lot of flexibility. It is a secure and reliable way of obtaining funds for startups. You need to have a detailed business plan ready for this. But you should stay away from this as much as possible.
5. Business Grants
Government or private organizations often help startups to raise funds. There may be a lot of terms and conditions attached to this kind of startup funding. But, when trying to fund your startup, it is definitely worth a try.
6. Series A Funding
Also known as Series A funding or Series A round, this is one of the stages of raising capital for startups. Much like seed financing, series A is also a type of equity-based financing.
You basically obtain Series A financing to ensure the continued growth and development for your business. After your startup has established a significant user base and revenue or some other performance indicator, you can opt for Series A funding.
In Series A funding, investors don’t just look for a great business idea but rather for companies that have an aggressive plan of converting their great idea into a money-making business. To acquire this funding, you need to ensure that you have a strong plan for the future.
7. Series B Funding
This kind of startup funding is all about taking your business to the next level. After you have gone through Series A funding, you already have proven to investors how promising your startup is and how prepared you are for success.
Now comes Series B funding, to grow your company even more. This funding can help you hire more staff, improve the infrastructure and create a better name for your company.
8. Series C Funding
Your company is probably already pretty successful if it makes it to the third one of the startup funding stages, Series C funding. At this stage, a company usually looks for more funds to develop newer products, acquire other companies or expand into new markets.
How to raise funds for startups – Some other ways
- Business loans from microfinance providers or NBFCs
- Raise capital by winning contests
- Apply for government programs that offer startup capital
Over to You
Here, I shared some ideas on how to get funding for startup. Hope this helps you on your way to startup funding. All the best!
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