James ArnoldFinding ways to raise money to fund your startup can seem like an overwhelming rollercoaster ride and make you lose sight of the passion behind your business. Many startup founders end up going down the path towards venture capital and giving away giant pieces of their equity pie to keep their business afloat. However, it is important to realize that there are many other great fundraising tactics that can draw in a buck or a million to fund your budding startup. Below are my top eight suggested ways to raise money so that you can identify the fundraising option that best fits your startup’s financial needs.
Crowdfunding Campaigns
Over the past couple years,crowdfunding has exploded within the startup business world and draws in upwards of $ 5 billion in fundraising profits each year. As the increasing trend shows, crowdfunding is an excellent way to raise initial capital, build your company concept, and share your innovative products or services with the world. You should definitely consider using popular crowdfunding sites, such as Indiegogo or Kickstarter, to start raking in extra funding.
All you need to do to start a crowdfunding campaign is open an account, post a video advertising your startup, create incremental funding goals, and provide rewards for all donors willing to shelling out cash in your honor. It is best to choose truly compelling rewards that your backers cannot wait to snag, such as pre-orders, branded t-shirts, exclusive access to events, signed photos, discounts, one-year memberships, and so on. Make sure you remember that donors will not be responsible for their pledged funds unless you meet your monetary goal.
Business Loans
When you’re in a pickle and are drawing up blanks for potential investors, it may be time to take a trip over to your bank of choice. Institutions are back to lending again and rates are still fairly low, so securing a business loan can be a great fundraising option. Beyond just filing a loan application, you will also need to provide a clear business plan, be interviewed about financial dealings in your startup, negotiate interest rates, and perhaps pay some extra fees.
If at all possible, it is suggested that you choose a line of credit because this will provide you with the most flexibility in spending the money at your own discretion and forking over money only for interest when used. Since financing of tangible assets is a much less risky move, another solid option is business equipment loans, which are designed to provide funding to cover the startup costs of everything from computers to furniture and machinery.
Fundraisers
Sometimes the best ways to raise money are actually to give back to your community through hosting charitable fundraisers. Not only will these events provide the opportunity to help a great cause and bring upon feelings of goodwill, but they will also increase the recognition of your startup business. Fundraisers will place your business on stage before numerous potential investors, customers, clients, and partners who might otherwise never heard of your startup.
It is suggested that you find a great cause that aligns with your startup’s interests and then spread the word about your charity event like wildfire across social media. Take advantage of the great networking options available in Facebook, Twitter, Google+, Pinterest, LinkedIn, and more to build a strong guest list. You will likely stumble upon individuals who are ready to hand over money to support both the chosen charity and your generous startup.
Angel Investors
Angel investors are valuable people who are so excited about your startup business that will hand over their own money to support your endeavors financially. To start finding sources of funding, it is typically recommended that you go through your Christmas card list to see if you can get some family members, friends, or acquaintances excited enough to open their wallets. From there, expand your search to local wealthy business owners, veteran entrepreneurs, trusted bankers, and even staff at your town’s Small Business Development centers.
In today’s tech age, social media is also quickly become a great source for finding the angels among you. Therefore, you should create social networking profiles that pitch your ideas and inform readers about your business goals to start capturing the hearts of angel investors. Find personalities that suit yours and who are truly eager to invest in you. If you have a good product or are providing useful services, there will be investors available to give you money.
Merchant Cash Advances
Merchant cash advances tend to be met with either an immediate thumbs up of approval or a big thumbs down of hatred among entrepreneurs. In all honesty, merchant cash advances can be tricky for new startups to handle because the high interest rates can crush young companies and make it nearly impossible to pay back early. Though they should only be used when all other avenues of funding have been tapped, merchant cash advances can work and bring some benefits.
Acquiring a merchant cash advance on your company’s credit card processing income is a useful source for generating cash infusion. Most startups fall back on cash advances when they cannot get their hands on bank financing or are looking outside the box of traditional investments. In order to apply for a merchant cash advance, you will need to have at least one year of good history with a credit card company and the strength to negotiate interest with your provider.
Internal Money
One of the most striking red flags for potential investors of new startups is when their founders aren’t committed enough to the project and remaining unwilling to put their own money in the pot to see it grow. Investors shy away from placing their trust in startups where the entrepreneur can walk away from a business at the drop of a hat without losing money. Therefore, if you put your own hard-earned money into the project, it is guaranteed that you will have a much higher chance of landing angel investors and sticking it out for the long haul.
Not only should you put your own money where your mouth is, but you should also go a step further to encourage your employees to invest in the startup too. Internal funding is among the top ways to raise money because it creates a work environment in which both the founder and the employees are fully committed to the success of the company with their investments. This is a surefire way to avoid bringing venture capitalists in to munch up portions of your equity pie.
Sales Profits and Revenue
It may seem too obvious, but many startups seem to overlook the fact that actually selling something is a terrific way to find the funds for growing your business. Whether you are promoting a product or offering a service, making sales is the general purpose of any business in every sector. Simply making sales will generate the profit needed to push your startup company to advance towards the next level of success. Pick up your phone, call your potential clients, and start making offers that they cannot refuse.
If you don’t already have a product or service to sell, switch up your plan by offering something that will earn you money, even if it won’t be your future revenue stream. Brainstorm some new services that you can provide through your startup to start generating the revenue needed to get your feet off the ground. For instance, you may want to consider video production, consulting services, or even educational efforts. Some new startups benefit from using their expertise to teach online MOOCs through Udemy to earn some much-needed revenue.
Federal and State Grants
Regardless of what you may have read on the Internet, federal and state governments do not provide grants for simply starting any business. However, there are different federal grants offered through the U.S. Small Business Administration that are aimed at specific industries and targeted national causes, especially scientific and medical research development. At the state government level, business grants are also awarded occasionally to advance the region’s economy and promote job growth. If you are a female, in a minority group, starting a rurally located business, or meet the above criteria, you may be eligible for grant funding.
Since government grants are funded through tax dollars, it is no surprise that they will require you to comply with very stringent guidelines and reporting measures to ensure the money is being well spent. Grants will never be given away casually, but there are various options available when you know where to look. In order to find effective ways to raise money through the government, use the SBA Loans and Grants Search Tool and file an application. Funding amounts may be small, but it could be the extra push you need to make your startup thrive!
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