The first question that comes to one’s mind after they have had an idea for a new startup project is how are they going to fund said project? There is no one single answer to this question as there are multiple ways of acquiring the capital you need to fund your startup.
Only a few startups succeed without any outside source of capital, without which most startups start to crumble at the early stages.
Here are a few different ways to raise money for your startup in 2021 –
Option 1: Bootstrapping
Bootstrapping means instead of looking for outside help you would be using your own saved up funds to fuel your startup business. And then paying for everyday operations using the earnings of your services.
More often than not entrepreneurs reach out to friends and family when they plan to bootstrap their own startup as they are the most flexible investors around as well as to diversify risk.
Bootstrapping comes with its own cons though, it is not exactly suitable for large scale businesses, and the entire. Also, the entire risk is on the shoulders of the entrepreneur and their team as there’s a risk they’ll drain out their personal savings.
On the other hand bootstrapping can be very flexible in terms of interest rates and involve almost zero bureaucratic interference.
Option 2 : Debt / Bank Loan
Getting a bank loan is probably the most intuitive option for any entrepreneur, which involves borrowing the money from a bank to fund a project and then repay the money with interest within a specific period of time.
It is a very attractive option as the entrepreneur doesn’t have to lose any control over the business and is free to use the capital to invest in the project.
But more often than not banks have very strict lending standards and require a track record of steady and predictable sales. This is where credit cards are useful, one can apply for a business credit card or simply use their own personal credit card.
This option is way more accessible than applying for a bank loan although the high-interest rates are something to look out for while considering this option.
On the other hand with a line of credit, after applying for a loan one can simply use as many funds as they need at the moment and pay interests only for that specific amount.
And the rest of the funds will be available for later use and no interest will be charged as a loan as they are not withdrawn from the bank. This is a great way to save on how much interest is paid over time.
Option 3: Venture Capital
Venture capitalists invest a lot of money into startups hoping for exponential returns. They monitor the business and help ensure its growth as they have a very active interest in it.
Your risk is also minimized by sharing ownership of the startup in return for capital. Valuation is a very significant process involved in determining the worth of your business.
These investors understand the market risks pretty well, so in order to attract their interest, a good model of returns must be presented to them. Their experiences in the market can bring a lot to the table, along with the funding.
So you have to decide if it’s worth losing a part of power and control over your business for it. Also, the height of their interest in the business is reached during the period in which they recover the capital and profit they have invested in the beginning.
Option 4: Crowdfunding
Crowdfunding is a way of reaching out to millions of potential investors on online platforms where individuals can present their ideas and crowd funders can support the business model and publicly donate funds towards it. Often they receive some perks in return, like early access to the product or service for instance.
The best thing about this is that people who are interested in your idea can donate as much or as little as they can. It’ll all go towards the growth of your business and if it takes off then more and more supporters are going to flock towards your business model.
But on the other hand, due to the popularity of crowdfunding in recent years the market is very competitive. More often than not you will find similar business models as yours already present on these platforms.
Hence there’s a chance your business might be overlooked in this crowded market. If growing fast is what you are looking for then outside funding is the way to go. Plenty of options are available in today’s market, just make sure you have an idea of how much funding your project needs and keep a track of all your finances. It’s a competitive market but with good decisions and planning, you can be the next big thing!