For young startups and businesses, finding the capital to get up and running is one of the biggest challenges. Before delving into the seven recommendations, I would like to encourage you to always adapt your funding needs and requests to the business stage you are currently in. For example, you might ask family and friends to contribute to seed capital in the early and middle stages of getting started. However, during the growth stage, corporate finance from an angel investor or a venture capitalist is usually more appropriate. I would also encourage you to always continue applying for funds. You will be rewarded eventually and get the opportunity to build your own company!
1. Ask family and friends.
An easy and very cost-effective way of raising seed capital is to use your existing connections. Ask your friends and your family members whether they would consider giving you a loan. Some of them might be more interested in investing directly in your startup, so you should be prepared with some suggestions. Usually, a loan is the easiest and safest option for both parties.
Make sure that you prepare your request well. Create a clear business plan and a professional presentation, or at least have some graphs and images ready. Let them know when and how they will get their money back.
Of course, there is always some danger when mixing business and pleasure. This is why you should be upfront about the risks and make an airtight plan for the worst case. Give your family and friends the option of not supporting you, too — no hard feelings!
2. Apply for a small business loan.
In many countries, banks and government agencies give out small business loans with favorable conditions. Lower interest rates are very helpful for the first few years of your business when you might not yet make the profit you expect long term. They tend to support borrowers with mentors, workshops, networking among like-minded startup founders, and other interesting opportunities and business news.
3. Participate in idea competitions.
Once you have a good business plan, you are ready to participate in competitions and tenders. Look for the relevant sector in your country and do a thorough Google search on “sector + startup + funding” and similar search terms. This should give you a list of competitions and companies that might be interested in investing in your startup.
Granted, this is particularly easy in the tech sector because most successful startups move into these spheres. But depending on your country, there should be many other idea competitions and opportunities, often organized on a local level by state agencies or even city offices.
4. Participate in incubators.
Similar to idea competitions, incubators or accelerators are ideal for businesses in the preseed stage or those looking for seed capital. Here, you have to show that your idea has a lot of promise. You will then be invited to participate in a program with state-of-the-art mentorship, networking opportunities and often generous seed funding.
Consider that there is always a lot of competition for a place in an incubator. Some programs are designed more as mentorships and might provide nonmonetary value, which for many startups is extremely valuable as well. I recommend applying for an incubator along with other events and programs.
5. Look for private investors.
Private investors are one of the best things that can happen to your startup. Typically, they will receive shares in the company in return for their investment. This implies that you should already have your business up and running, or at the very least be able to produce a very good business plan.
There are two different kinds of private investors:
Angel Investors: Angel investors are private individuals with a high net worth who like to support young companies. They expect a high return on their investment since they invest their own capital. For example, both Amazon and Apple aligned with angel investors when they started out. Be aware that the angel investor, while remaining anonymous to most, will want to have a voice in the everyday running of your business, so make sure that you are comfortable with the deal.
Venture Capitalists: Whereas angel investors often support startups that are just starting out, venture capitalists tend to support expanding businesses. They do not use their own money but that of investors from a fund. For the growth stage of your company, getting the support of a venture capitalist can be just the thing you need. The venture capitalist will also own shares of your company and participate in its everyday running.
6. Contact schools and businesses in your sector.
Another way of getting support from your chosen line of business consists of researching related businesses, companies and even business schools. By sending them your business plan and asking for funding opportunities, you might find some gems that are not part of widely known funding campaigns but are still interested in supporting you.
In these instances, networking is particularly important. By being open about your business, presenting your ideas and always having your business plan ready, you can impress the right people and ask them for funding. Make sure to offer something in return.
7. Try crowdfunding platforms.
One more idea for funding is crowdfunding, where both individuals and businesses may obtain funding online in exchange for some kind of reward, such as exclusive access, tokens or an honorable mention. Platforms such as Indiegogo and Kickstarter are well known for reward-based crowdfunding.
Donation-based crowdfunding is similar, with the difference that there is no payback expected. Instead, you get a donation, for example on the platform GoFundMe. You can also try your luck with debt-based crowdfunding, where you are matched with investors. Platforms include Lending Club and Prosper. Yet another option is equity crowdfunding. In this version, you offer investors some kind of ownership in your company, for example through shares.