By Lucy Boyle
Thousands of startups are formed every year, all with one goal: providing new solutions to problems. Entrepreneurs with dreams of business success conceive of a broad range of amazing ideas, and so many great startups emerge on a daily basis.
The real question is “How many of those startups succeed?” At least 50% of businesses fail within the first 4 years of operation. In fact, a survey of businesses founded in 2011 found that only 3 percent survived until 2016. That’s a pretty terrifying statistic!
How do startups succeed? By getting outside funding! If you’re looking into funding options for your startup, here are your top choices.
Venture capitalists are essentially “professional investors.” They have a certain amount of money they can use to invest in startups and businesses. If your idea has merit, you’ll find VCs are more willing to consider working with you to turn a profit, though they won’t often invest in your long-term business success. You’ll need to go into the meeting with a well-prepared pitch deck and a great presentation; VCs are looking for the most efficient ways to make money for their clients, so they want to see a business that has the greatest chance of success.
Angel investors are high-net-worth individuals that are looking for investment opportunities. They may be willing to shell out hundreds of thousands of dollars for a startup with a great chance for success. These investors tend to have the more long-term mentality, and will usually be willing to work with you for a period of years — in exchange for a higher return on their investment, of course.
The Small Business Administration can help you to get some cash for your startup, and you may be able to take out a business loan or a line of credit for your new business. However, you’ll have to have a good credit history to make this happen, and it’s likely you’ll have to put one of your assets down as collateral.
Kickstarter is just one of the dozens of crowdfunding platforms you can use to find funding for your business from the public at large. The downside of crowdfunding is that it’s subject to the whims of the populace, and many great products have failed to launch because they couldn’t get enough funding. On the other hand, if you have a product that draws a lot of interest, it’s possible to get a lot more than your minimum funding amount. It’s a bit more “luck of the draw” than business savvy, but there are ways to increase your chance for success.
This is usually where most startups begin. Entrepreneurs can save up for years before they launch their business, or they have a “day job” to keep their startup funded. This allows you to control every aspect of your business, but you’re limited to what your personal finances allow.
Friends and Family
The average startup can raise about $15,000 from friends and family investors. This is the first source of non-personal funds, and it’s actually a very important one. If larger investors (angel investors, VCs, etc.) see that your friends and family aren’t willing to invest in your product or business idea, they may wonder why they should as well. You may not get everything you need to run your business, but it’s a good idea to present it to your friends and family in order to see if you can get at least some of the needed funding.
The U.S. Government has a number of business grant opportunities available to small businesses in very specific industries: education, social needs, medicine, etc. The government grant website (grants.gov) has a list of federal grants available for businesses, and you may find that your business idea falls within the realm of one of the grants. The process of applying for and receiving the grant is time-consuming, so don’t expect to receive funding overnight.
Accelerators or Incubators
There are a number of organizations intended to promote new startups. Y Combinator is the most popular incubator/accelerator organization, but there are many more around the country that could help you find resources, investors, facilities, consulting, and possibly even seed funding. However, you need to do your research to know what to expect from these organizations before joining.
Get an Advance
If your product or service is going to benefit a major customer, they may be willing to give you an advance. They’ll do so knowing that you’re going to make them a lot of money in the long run. It’s not the most common source of funding, but it doesn’t hurt to ask if you already have a deal with a major customer.
Getting funding for a startup isn’t easy, but it can be done. It’s all about knowing what you have to offer and finding the right people to offer it to/ask for money!