How Can I Fund a Startup?
Got a killer business idea? Fantastic, but now comes the tricky bit; finding the money to get it all started. Here are a few ideas.
It was a cold morning in London and two brothers, Alan and Gary Keery, were out and about in Shoreditch nursing something of a hangover. They found themselves craving cereal but could find nowhere offering it. A short while later and Cereal Killer Café was up and running in East London.
It’s an experience many startup owners can relate to – that moment of inspiration when an idea simply comes to them, but having an idea is one thing, getting funding for it is quite another. Banks have been a traditional source of finance, but their requirements have become much stricter. So how do you find the money? Here are a few possible sources.
Friends and family and yourself
These are the people who know you and – hopefully – love you more than anyone else. They want to help you succeed and may trust you in a way that a stranger will not. They are much more likely to help you out by investing. Of course, this always comes with the proviso that mixing personal relationships with money is a dangerous path and should only be done if people fully understand the risks and are not putting their own financial health on the line.
Many entrepreneurs will also use their own savings, although you must be prepared for the risk that you might lose it. Equally, the chances are that you’ll only be able to raise a comparatively small amount of money from yourself and your friends, so this approach is also only really useful if you’re going to be starting very small.
Programs, incubators and accelerators
One of the reasons the brothers at Cereal Killer Café got their idea off the ground was because they had support from Virgin Startups, which helped with funding and mentorship. Accelerator and incubator programmes can offer a great way to get an early stage start up off the ground.
These programmes can normally be found in major cities and are often sponsored by major corporations such as Virgin. Accelerators and incubators differ slightly in that the former is intended to fast track a business towards growth while the later nurtures it in the early days. They are extremely attractive because they offer the prospect of funding as well as mentorship from an expert. For a first-time entrepreneur, this can be every bit as valuable, as it offers advice, guidance and support from leading experts who have been there before.
Governments also have a number of programmes to encourage start-ups. These come and go so it’s important to keep your eye out.
Sometimes what you really need is an angel. These investors are typically highly successful people with large chunks of money who are looking for an exciting over-the-edge business to invest in. They don’t mind losing their money because they have enormous amounts of it. They are driven by a passion for growing businesses and the hope that they could find themselves in on the ground floor of the next big thing.
Angel investors often get together into networks where they work together to find attractive investments. Some of these are particularly keen to invest in companies which have a positive social impact – also known as social enterprises. These, such as ClearlySocial Angels, use connections with high-net-worth individuals to support exciting businesses with plenty of potential.
Venture Capitalists look for growing businesses with a great prospect for a positive return. They will normally eye a relatively short-term exist strategy in which they take advantage of rapid growth before taking their profits.
They can offer an enormous amount of money, but it often involves giving up control over your business to people whose loyalty is strictly limited to how much they are going to get from it. Once they have made their profits, they will be off, up and away.
If you don’t like the idea of handing over control over your company to faceless money grabbing venture capitalists crowd funding could be the way forward. This has boomed in recent years with a number of crowd-funding platforms popping up offering people a way to support exciting businesses.
You will create a pitch for your business and have a target amount. Anybody who wants to invest in you can pledge their support. It opens up funding to people with smaller budgets who might be willing to risk small sums to support a business they believe in.
One of the best examples of this was Oculus Rift a virtual reality gaming headset which raised millions on a crowdfunding platform. People were driven by a desire to not only make money but because that looked like something they wanted to see or buy.
As a side-benefit, successful crowdfunding campaigns can also do all your marketing for you and make all sorts of connections. However, this is an increasingly competitive environment. There are plenty of people trying to do the same thing as you and, if their pitch is more compelling than yours, it might be difficult to secure funding.
Getting the figures straight
The good news, then, is that there are more and more options when it comes to funding your startup. We’ve mentioned a few good ones here, but the one thing they all have in common is that you will need a great business plan.
Whether trying to attract the attention of venture capitalists, angel investors or people on crowdfunding platforms, you need to be able to inspire people with your business and ensure you have all the numbers in place. To be successful, you must show clear, strong and realistic projections. This not only shows that the investor has a great chance of getting his or her money back, but also that you are a reliable entrepreneur who understands the importance of financing. For many investors, the key to the success of an organisation will be people who have their business head screwed on tightly.