How to get funding for startup: This is a short article on how to get funding for startup. Startup funding is often a big deal because it not only conveys that someone believes in your idea but makes the business idea powerful. In the article – the difference between small business and a startup, we talked about the need to scale. A small business can afford to be organic and wait whereas a startup thrives on quick growth and explosive development. As a founder, if you’re focused on explosive growth, you need to find out the best way to fund your startup
How hard is it to get funding for startup?
As much as I’d like to say that it’s very easy to get funding, the reality is different. Startup funding is time-consuming and most times turns out to be a full-time job for an entrepreneur. As a founder, I’d grossly underestimated the time it takes to create a startup pitch, financial models and develop growth plans. Although your business plan helps to answer a variety of these questions – developing a pitch is a mighty task indeed.
Most investors ask you for either a product or an MVP. Some investors even ask for initial customer interest as a sign of real interest or demand in your solution. Depending on the stage of your business and the business model, you can consider various funding types for the business idea. My sincere suggestion would be to keep the scope small and try the Minimum Viable Product method to minimise your losses.
To grow, you will need investment and often the best route is to seek external funding. There are various types including debt funding, seed investments and VC backed investments. You’ll need to choose what works the best for you.
Sources of funding for startup
Typical sources of funding range from self, debt, govt grants, equity financing. You can choose either a combination or a single route based on your business idea. More details on how to raise funds for a startup can be found in the types of funding article.
Self Investment and Loans
Unfortunately, most articles about funding ignore the investment required by a startup founder. This is probably because the story of a startup growth through self-investment sounds less romantic. However, investment through an entrepreneur is one of the best ways to show your commitment to the idea. The standard simplest routes of investment are Self, Family and Friends and finally the loans. Read more about how to build a startup with no money for some strategic tips
Govt Support – Grants, Tax Incentives
One of the nicest ways to answer how to get funding for startup is through govt or external bodies. These organisations usually support an area of work such as cyber security, social entrepreneurship etc. Identify which segment your business idea comes under. Based on that you can apply for funds.
Sometimes, even the incubators or accelerators offer a bit of funding to develop your business idea. The rule of thumb says – if your business idea is in the early stages, your best bet is through grants, incubator led funds. Sometimes you can even get lucky with seed investment which comes under the equity funding category.
Equity Funding
As the name suggests, you give up a part of your business in exchange for capital. Normally there are various stages in equity funding. At early stages, you’ll need to give up a larger % of your equity since the investor’s risk is higher. If you have to pay customers, your case for raising funds is stronger.
The early stages Venture capitalist backed funds or seed funds are a great way to boost the potential of your idea. You can get into these stages with a concept of the product before the market is completely ready.
Customer/Crowd Funding
This type of funding works best if your product is simple and easy to understand. You can find various sources for crowdfunding. For a crowdfunding mechanism, you can create videos explaining your product and what end-users receive. Sometimes it can be equity or early sign up for the product itself.
Don’t underestimate the effort involved in raising crowdfunds. Although it sounds attractive, this route will demand an equal amount of work if not more than the alternatives.
What type of funding should I choose?
The above types of funding work based on the type of your business. Note that raising funds can be a full-time job for a founder and can be very stressful. Make sure that you have specific plans on how to use the funds and ensure a long runway. Your fundraiser can take anywhere between 6-8 months in the best case. Amidst running a startup, this is undoubtedly a huge commitment.
Choose carefully about the type of funding you’ll go for your startup. Each of these methods has their own merits. Sometimes it comes under the guise of control and some other times as aggressive deadlines. Choose which ones your preference is to grow your startup
