Traditional banks have been used to fund various business startups since time immemorial. The bank is not only one of the oldest lending institutions, but also the go-to for many entrepreneurs. However, it is not always the easiest way to get funding for a startup. In fact, people who has running businesses are likely to obtain funds easily from a bank than someone who is just starting over with an untested business model.
As much as banks are incredible sources of capital for most business people, there are alternative methods to fund a startup. With a solid business idea, the chances are that you can secure funding from these alternative options and start or grow your business.
These are investors who invest in promising startup ventures with the aim of making a considerable amount of profit. Normally, if you pitch your startup idea to a venture capitalist, they will provide capital for the business and retain a certain percentage of the business.
Usually, venture capitalists and startup owners negotiate on the percentage of the business that the investor will retain. For a business without any form of security, a venture capitalist is a brilliant option.
According to the CEO of MyCorporation, Mrs Deborah Sweeney, a venture capitalist offers more than just money to a startup. These benefits include a well-established business network from the investor’s firm as well as a wealth of experience. The input of a venture capitalist provides a better chance for the startup to flourish.
This is whereby a startup partners with another interested entity that provides funding for the business. The strategic partner is bound to benefit from investing in the startup in a number of ways. This may include having a kind of special access to your product, a portion of your sales or a royalty from every single sale.
In most cases, strategic partners may be a similar line of business or have a large company. Other times, the partner is from a totally different industry that has some interest in your business for whichever reason. Such partners may have great leads for your business such as a relevant customer base or robust marketing that you can use.
Sometimes, they may be offering a product or a service that is compatible with yours, hence driving your growth and sales.
Unlike seeking funds from a single source, crowdfunding enables a startup to pool capital in bits from several investors. There are various sites that are involved in crowdfunding, including Kickstarter, Patreon, Lending Club and Indiegogo.
However, some of these crowdfunding platforms ask for payment processing fees. However, you need to do some research on this type of funding before settling on one.
Grants are not for every kind of startups. Nevertheless, science and research-based startups have a significant chance to access this method of funding. There are government agencies that offer grants to startups in these areas. However, you need to fulfil certain conditions to be eligible for government agencies. Some of these requirements include federal research and development objectives. You should also show that your startup can be commercialized.
An angel investor is an individual who invests in a startup while it is still in its early stages. Usually, this might even be before the startup demonstrates its full growth potential. According to Nate Masterson, a marketing manager at Maple Holistic, an angel investor is someone with enough capital and interest to own a portion of your business; you leverage your idea on their capital.
Benefits of using alternative methods to finance a startup
One of the benefits of having an investor is that they can contribute more to the startup, especially in terms of expertise. With the guidance of the investment firm, a startup can grow much quicker.
Also, the startup reaps from the credibility of the investor. If the investment firm is established and has a good reputation, your startup gains from being associated with the investor.