Financing is a hurdle faced by nearly every entrepreneur and can the need for funding can occur at various stages of a company’s life cycle. It’s important to know what options are available, as well as the risks that come with each.
Some common methods of financing include:
- Friends & Family – Many early stage companies raise a “friends & family” round, relying on the networks of the startup’s founders for seed capital.
- Crowdfunding – If you are selling a product or service that you think would appeal directly to consumers and you need capital to fund your business, consider crowdfunding as an option. Sites like Kickstarter, Indiegogo , and Gofundme allow you to post your “project” for viewing by thousands of potential funders in exchange for a percentage share of your money raised.
- Contests & Grants – A great way to get funds for your start-up without giving up equity is to apply to contests and grants. In this article Forbes offers some tips for those seeking grants. A tip: follow entrepreneurship organizations and centers, accelerators, and VC firms / angel groups on social media for posts about local contests.
- Small Business Loans – This option is most effective if you have been in business for a while and are generating some cash flow. For those who meet these requirements, the Small Business Administration offers different types of loans to help you grow your business.
- Angel Investors – For early stage companies with an ability to scale quickly and high growth potential, there is the option of raising a round from angel investors. There are many angel investors, both individuals and groups, who invest ~$25B each year in early stage companies. Most angel deals are done with companies who have either successful beta testing or initial revenues. Deals range from straight equity to convertible notes.
- Venture Capital Firms – For later stage start-ups with a proven track record of success who are seeking to reach the next level, raising venture capital funds can be the right next step. The total Venture Capital market is ~$45B, invested in a variety of industries and stages. You can check out the VC100 for a look at the top 100 venture capital firms in the U.S. Researching the right firms for your company stage and industry is essential when raising VC funds. Looking at the funding history for similar companies to yours on CrunchBase or AngelList can be a good place to start your research.