You’ve got a great business idea, a new product or service that you are sure is going to rock, and want to build a startup around it. But typically, unless you come from a wealthy family or you managed to gather a considerable amount of money yourself, you’ll now need to find a way of funding your company.
It depends on the idea you want to develop, but your business may require a significant amount of money to get off the ground. So the only way to move forward is to look for external funding. Here we come to the heart of this guide: which options do you have to fund your startup? It greatly depends on the dimensions you want to reach and of course on the kind of things you want to develop…
First option: look for venture capital
If the startup/business idea you have in mind is quite big and requires plenty of funding (for example you want to produce a new kind of car engine) you should try the venture capitalist route. Here the figures we are talking about are big (millions of dollars), the investors are accredited professionals and are investing not just their own money but on behalf of other people too. As a reward, venture capitalists usually request a tremendous return in a short period of time (usually one or two years, until the startup is capable of going public).
To attract venture capital, you have to “bake” an extremely good presentation of your idea and of how you plan to develop it, along with a detailed business plan. Since finding the right venture funder is like finding the right spouse, examine the various firms in detail. Look at their track record and current investments, and seek out the ones that invested in businesses similar to the one you have in mind.
Second option: angel investors
Angel investors are suitable if your business is medium to small. While with venture capitalists usually you don’t have more than one funder, here you can rely on more than one “angel”. Angel investors must be accredited to invest in startups (they must have an annual income of over 200.000 dollars), so the first thing to look at is if they respect the prerequisites.
You should then ensure that you are combining with the right people, because you are not borrowing their money, you are giving them a piece of your company and the right to participate in decisions and in profits. In any case, there are angel investors groups and syndicates, so the best way to look for angel funding is to scan through these groups and platforms.
Third option: crowdfunding
Crowdfunding is subject to much less constraints than the two options above. There are many crowdfunding platforms where you can promote your idea, set an objective and ask for funding. The rewards can also be different and don’t necessarily have to be equities in your future company. For example you can offer your funders the product that you plan to manufacture (maybe at a discounted price or before the true commercialization phase) as well as other rewards.
In some cases, there is no reward. If you are developing a non-profit idea, often people will get involved simply because they see value in what you are doing and not for financial gain. Also, with crowdfunding the investors can invest really small amounts of money, so it’s accessible to almost anyone. It may be the best option for you if you don’t want all the constraints of traditional startup funding or if your business it’s not going to need huge amounts of money.