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Every business idea requires funding to get actualized. Even the most brilliant innovators need funding to steer startups to success. Funding is essential for any business determined to grow. That said, raising money for a startup is never an easy task.
Statistics show that about 1 in 100 startups‘ pitches for venture funds succeed. The majority fail for various reasons, including a lack of precise planning and pitching to the wrong institutions. So, what do the few that succeed do differently? Here are four sure ways to raise money for a startup.
Bootstrapping is by far the best way to fund a startup and is recommended by most business financial advisors. It means using personal resources to finance your startup without depending on external sources. You may get money from your bank account or use a personal asset like a car to get a loan.
Using your own money also gives you full ownership and greater control over the business. And since you take the full financial risk, you’re motivated to work hard to ensure your money doesn't go down the drain due to poor decisions.
2. Strategic Partnerships
A strategic partnership divides responsibilities between the parties involved. The partnership can be between your business and suppliers or distributors. The support you get from your partner may not be direct funding but credit to support your business in its initial stages before it stabilizes.
For instance, if your startup deals with large product orders, a purchase order financing company may offer to pay 100% of production costs. Once you ship and sell the products, you pay the money back with interest. You can also partner with a dealership to get trucks to transport your goods. If you pre-qualify auto loan, the dealer will give you a better deal on the trucks.
3. Participate in Contests
Business contests are more common in business schools, although you can also find them locally. They have few conditions compared to other external funding options. And the best part is even if you don’t win the contest, you walk away with valuable lessons about the things you need to do differently in your pitches.
Startups in creative industries have higher chances of winning contest funding if their ideas stand out. Social enterprises can also participate and win contests if they can craft convincing pitches.
4. Angel Investors
Many people think angel investors can help them raise startup money quickly with less struggle. Angel investors put money in your business in exchange for ownership equity or convertible bonds.
Some angel investors will take a portion of every sale you make depending on your initial contract agreement. However, most angels will scrutinize your business first for signs of potential growth before entrusting you with their money. Ensure you have a great business idea or high growth prospects before approaching “angels” to invest in your business.
There are multiple avenues available for small businesses looking to raise capital. However, no single one is ideal for all startups. Knowing your financial needs and projections is crucial before you explore funding options. Also, determine whether you'll require extra cash to keep the business afloat before it becomes stable.