Financing is the life source of any business.
90% of startups fail to survive their first year of operations, inadequate funding being the prime culprit behind their swift demise.
Many businesses have a once-in-a-lifetime idea. But to materialize it, they need an engine called ‘capital’—it’s an absolute necessity to keep the dream of revving up a business alive.
The timing of the funding will depend on your business model. But once its need is imminent, you’ll have to look into different financing options, such as crowdfunding and debtor financing, to make sure you’re not adding to the shipwreck of many other entrepreneurial ventures.
Here are a variety of financing sources you can explore to gather funding for your startup:
Crowdfunding is a relatively new area of startup financing. But its popularity is booming. It’s similar to taking a pre-loan from people interested in your business model or product.
Here’s how it works—an entrepreneur presents a detailed presentation of his startup on a crowdfunding platform. This comprehensive business plan or mission statement highlights things like long-term revenue streams, business milestones, the parts of the business where the funding will help, and so on.
If someone is convinced and is interested in investing in the idea, they’ll donate according to their financial capacity. The funders will make pledges, with the condition of pre-ordering the product or making donations.
Crowdfunding platforms are public forums, and anyone can pitch in and finance a startup they believe is destined for greatness.
One of the best things about crowdfunding is that it provides room to market your product by generating interest. It’s a safety measure to make sure your product is targeting your customer base on launch. You no longer need to involve high profile investors and maximize your chances of attracting venture capital investment in the long run.
However, keep in mind that you have to face fierce competition on crowdfunding websites. Your business should have stone-hard foundations to get the investment you have in mind.
Some of the most widely populated crowdfunding websites are:
- Debtor Financing
If your business is tackling with cash flow issues, debtor finance is the best course of action.
Debtor financing is an umbrella term for a host of options. But, the most important are invoice financing and invoice factoring. Both of these pathways add capital to your business without incurring long-term debts.
Here are a few things to consider before choosing one of them:
- Invoice financing: Invoice finance firms only furnish a cash advance after looking into your unpaid invoices. Depending upon this amount, you can get anywhere from 70-90% within a day. Once you’ve cleared your unpaid invoice, you’re liable for the rest of the payment, excluding the financing company’s fees.
- Invoice factoring: Invoice factoring works along the same lines, except for one caveat. The invoice factoring companies clear your unpaid invoices on your behalf by directly getting in touch with your lenders.
The qualifications are pretty lax for debtor financing, especially in comparison to overdrafts and conventional loans. Thus, it opens up an interest-free steady stream of revenue for businesses with low creditworthiness and revenue
- Angel Investing
Angel investors are accomplished people who have a bucket load of cash an avid interest in promising up and coming startups. They also collaborate to review the proposals of startups and offer advice and suggestions to improve startup progression.
Angel investors have dipped their hands in many noteworthy startups, including Netflix, Google, and Yahoo.
Angel investing mostly occurs in the early stages of a business when it’s still laying its roots. An angel investor sets equity to 30%, but this number can go up if they think the returns are going too enormous.
However, angel investing as a financing source has its drawbacks. For one, you lose complete control over your business. The angel investor becomes a sort of watchdog overlooking and interfering with the operations of your business, even in day to day activities. This scrutiny may become meddlesome, especially for a startup that’s in its early days and has a lot on its hands.
Some famous angel investors you should check out are:
- Robin Hood Ventures
- Sutton Capital
- Alumni Ventures Group
As a startup entrepreneur, you need the initial funding to turn your idea into reality. Depending upon your financial condition and portfolio, you can choose a financing resource that serves your need best. Make sure you sit down and have a proper discussion with a marketing and finance professional who can nudge you in the right direction.