Every growing business needs capital. While there are plenty of strategies you can pursue to reduce your startup costs and stretch your resources farther than you initially thought possible, you will likely need an infusion of cash at some point during your growth.
This is doubly true for businesses that may take years to produce substantial streams of revenuefor instance, companies developing products or solutions that require intensive, time-consuming research.
Fortunately, its possible to find startup funding from a number of sources. These are six of the most common.
- Friends and Family Members
Many early-stage entrepreneurs turn first to members of their personal networks: close friends, acquaintances and members of their extended families. So-called friends and family rounds are not as heavily regulated as publicly advertised fundraising rounds, and far less complicated than initial public offerings (IPOs).
Raising money from friends and family can be easier and less complicated than raising money from professional investors, writes entrepreneur Nathan Lustig, who has undertaken two friends and family rounds during his career.
However, petitioning friends and family has its drawbacks, he cautions. For example, the size of your personal network may affect your ability to raise large sums from friends and family members alone.
- Your Own Personal Resources
As an alternative or supplement to friends and family rounds, consider tapping your own personal resources: cash in savings accounts, liquid investment accounts, home equity and the like.
When you self-fund, you are accountable only to yourself, your employees and your clients, says Miami entrepreneur George Otte, who self-funded a successful computer repair business in college. Thats a powerful argument in its favor.
- Traditional Bank Loans
A traditional bank loan is a viable option for entrepreneurs with substantial collateral. Bank loans usually come with lower interest rates than non-traditional financing vehicles, so theyre appropriate for business owners seeking to limit their financing costs. However, a traditional bank loan is not appropriate for everyone. If youre not sure about its suitability for your startup, consult a business adviser.
While its difficult to raise large sums of money through crowdfunding, this is a suitable option for smaller-scale startups.
That said, designing a successful crowdfunding campaign requires a surprising amount of thought and due diligence. The most important aspect of your campaign is effectively communicating the story or message behind your idea.
Crowdfunding is all about stories, writes Entrepreneur contributor Nathan Resnick. Explaining why you need their support is just as important as the product you are pitching.
- Angel Investors
Angel investors typically provide larger cash infusions to high-potential startups in growing industries, such as software and biotechnology. But angel investing arrangements are complex. They may involve an exchange of equity or convertible debt, so theyre not ideal for entrepreneurs who wish to retain full control of their enterprises.
- Venture Capitalists
Venture capitalists provide funding at a later stage than angel investors. Like the funding arrangements of angel investors, those of VCs usually involve an exchange of equity; however, their funding can be invaluable for ambitious entrepreneurs who need substantial capital to take their products to market.
Have some funding tips for other startups? Please share in the comments section below.