10 Best Ways How to Raise Money for Your Startup
Must-Know Tips on Raising Funds for Your New Company
Want to know the best ways how to raise money for your new company or startup? Startup "success" statistics are scary, so it is no wonder that investors are cautious when an entrepreneur approaches them with the next revolutionary business idea. Inc. Magazine reports that 25 percent of all startups will not make it past the first year. Fifty percent die within the first five years and only 10 percent of them make it to their sixth birthday. Another six percent are gone before the 10th year.
How can you avoid being another startup failure? It is all about raising smart startup investments. Use these 10 ways to raise money for startup businesses.
1. Understand Your Options
According to the U.S. Small Business Association (SBA), you must learn the basic investment terminology before approaching potential investors.
Who are Private Equity Firms? Private Equity firms manage investment money for private individual or privately-owned businesses. Private equity and VC firms like Angel Kings help companies raise smart capital to grow their business.
Who are Venture Capitalists? Venture capital financing goes to startups that have high growth potential. Top venture capital (VC) firms do more than provide cash, they help create business planning.
Who are angel investors? Angel Investors are individuals with a high net worth that offer startup financing. They often work through investment groups or networks. According to angel investor and venture capitalist, Ross Blankenship, knowing how to raise money from angel investors is critical.
How can you raise money from Angel Investors? These angel investors will do their research, so make sure to have a polished presentation ready. Some will be interested more in the cause than the return, so look for a group that fits your niche.
2. Consider Government Venture Capital Programs
Another startup fundraising option is government sponsored programs like the one the SBA offers. They take private investment funds plus the organization’s capital and invest it in promising startups. The SBA backs the startup by guaranteeing private investors a return.
3. Crowdfunding Opportunities
When you exhaust venture capital financing and angel investing options, then crowdfunding is a practical step. Unlike traditional funding scenarios, crowdfunding venture networks raise money by taking a little from a lot of people. Compare this to a venture capital or angel investing group who get large amounts of money from just a few private investors.
4. Seed Funding
Seed funding is capital raised during a seed round, but what is a seed round? With a seed round, a startup offers an equity stake like Series A Preferred stock in exchange for investment capital.
5. Create Series A Preferred Stock
What is a series A Preferred stock? A Series A investment refers to stock offered during a seed round. Preferred stock goes to investors such as the founders who put their own money into the business, employees, friends who invest in the startup and angel investors. It makes them stakeholders in the company.
6. Apply for a Bank Loan or Line of Credit
Unless you intend to put up personal collateral, this is probably not a viable option. Banks and even the SBA will investigate your personal credit history and look at your assets before agreeing to loan your business startup funds. We also recommend checking out companies like Able Lending, which provide excellent alternatives to raising money from the big banks.
7. Barter Services
This is a practical way to reduce your operating expenses, so you don’t need as much startup capital. It also looks good to potential partners like angel investors. A good example of bartering in action is a startup company offering computer support to another business in exchange for office space.
8. Look for a Startup Incubator
Startup incubators or accelerators are often universities or community development groups that provide free resources to get a business started. For instance, a community group might donate space to a neighborhood grocery store to get them going. Some of the best startup incubators include 500 Startups, Y-Combinator, and Techstars. Angel Kings recommends all three of these as options for very early-stage fundraising and mentorship.
9. Start an Online Funding Campaign
Online groups like GoFundMe or Kickstarter give startups a chance to solicit funds from friends and strangers. People make pledges to the startup in return for a free product or service. They can also just make a donation to a business they consider worthy.
10. Use Your Own Funds... wisely.
Personal savings, loans against a life insurance policy or pension – you have the most to gain from a successful startup, so be willing to look at personal funding options if necessary.
Unless you happen across a really generous benefactor, you probably will use a combination of funding options to get going. It is all about doing the research and coming up with startup investment strategies that will sustain your business until it can stand on its own.
You can also read more about startups in our newest book, Kings Over Aces. In the book you'll get some awesome tips on raising money and how to spend money, which is often even more important to know as a startup founder.
As a private equity and venture capital firm, Angel Kings makes calculated, intelligent investments in startups ranging from cyber security to biotechnology. Get started investing private equity and venture capital today: http://angelkings.com/invest-in-startups
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