If you’re thinking about financing your business, it’s important to know the different financing options available. There are many financing options for startups and there are also many possible investors who may be interested in helping you out with your idea like advisory share. In this post, we will discuss some of the financing options available to finance your Startup, aside from yourself, family and friends.
5 Types of Investors Startup Founders Need to Know About
The best option is to do your research on the possible investors before pitching them with a project. Make sure you know exactly how much they can invest, what their investment criteria are and if there has been any recent changes. Here are five potential investors Startups could pitch for:
- government financing programs
- venture capitalists and seed funds
- private equity fund managers
- crowdfunding platforms/crowdfunding websites –
What Are Angel Investors?
Angel investors are one of the best financing options for start-ups. Angel financing is basically financing that comes from private individuals rather than institutions or corporations. They typically invest smaller amounts at an earlier stage in a business’ life cycle.
What does this mean? – Angels can be found through word of mouth, referrals, social media and other campaigns. There are private investors. An Angel Investor provides financing for start-ups with the expectation that they will receive a financial return on their investment in addition to an opportunity for personal fulfillment from helping entrepreneurs.
Angel financing can be a great option for start-ups and entrepreneurs, but it does come with its risks. Angel financing is generally more flexible than other financing options such as shareholder loans or bank loans. For example, because there is usually less paperwork involved in an angel investment deal, it takes less time for the financing to go through.
However, angel financing is more risky than say bank financing because there are no guarantees that an investor will get their money back if they need it later on. Each situation with an angel investment deal is different so you should be sure of what your individual risks you are taking.
Government Financing Programs
A lot of Governments nowadays offer programs to help start your own business. Government financing programs for start-ups vary in each country and depend on the economy. That might be tax reduction but can also be money to apply for or a special loan deal. The following list is a few examples of financing programs:
- Small Business Administration Loans (USA) – provides government-backed loans to help small businesses, with low-interest rates and flexible repayment periods.
- Enterprise Investment Scheme (UK) – offers tax reduction and other benefits for small business owners.
- Start-Up Chile (Chile) – provides financing and support for start ups trying to get established in the country.
Find out what your country has to offer and apply for it!
Venture Capitalists and Seed Funds
With so many different financing options available today, it can be difficult to know which financing option will work best for your startup. This is where an expert who specializes in financing and funding of businesses can come into play. A Venture Capitalist or seed fund can help you and your business in financing and funding your business in a way that works best for you.
A Venture Capitalist is an individual or company that invests in start up’s and small companies who have high growth potential, but are too risky for other types of financing options such as loans from banks. A Venture Capitalist will offer what is called “venture capital” which consists mainly of equity financing, providing the funding required in exchange for an ownership stake in your business. The financing can be used to fund start up costs, expansion or renovation of facilities, research and development needs etc.
Seed funds are a form of financing that is similar to Venture Capitalist financing except they typically provide less capital than venture capitalists do. Seed Funding provides financial support at the early stage and helps to plant the seed of your business.
Crowdfunding is financing a project or venture by raising money from a large number of people and especially from the online community.
It is an alternative financing option that does not involve giving up equity in your company but instead allows you to keep full ownership and control of the business while still getting access to capital for startups. This is often spread via social media and has become quite famous in the last couple of years. However, it often does not give enough money to fully fund a company.
How Does Crowdfunding Work?
Crowdfunding is done through certain pages or social media. Let’s say you need financing for your new product. You can go to a crowdfunding page and describe your project/idea and why financing is important, what will it be used for etc. People that are interested in the project or think it is a great idea invest money into it through this platform by buying equity or giving donations. It has been a very successful way of financing startups.
All in all, there are more options to finance your startup than a bank loan. Other entrepreneurs are often willing to help and give advice. You should always keep an eye on events, tenders or governmental projects.