Obtaining funds for a startup is vital to sustaining the project. This makes it possible to recruit competent people, buy the necessary tools for the company to function properly, and increase the credibility of the brand. Funding is important when we consider 8 out of 10 startups go bankrupt because of financing problems.
The biggest challenge for a startup is to finance quickly and efficiently. This is a complicated step as investors want to ensure a return on their investment and are reluctant to lend money to a newly created company.
How to finance a startup
There are several ways to raise funds. Some are faster than others but can recover less money. Therefore, it is important to understand financing steps and choose the right source of funding so that you do not lose time and can increase your chances of success.
It should also be considered that some funding sources are only possible once your business has reached an advanced stage. So, here are some possible financing options.
Self-financing
When we have an idea in mind, we must try to realize it quickly, even if the product or service is not yet finalized. This allows you to quickly test the idea on the market and avoid wasting time developing a product that does not work with the public. To launch your idea, you will probably need to use your own funds and self-finance at first.
So, be prepared to self-fund, especially at the beginning. If your company has several co-founders, each one will generally bring money up to his stake in the capital of the company.
Love Money
When you have a draft product or service, you can then try to recover money from relationships (your family, your friends). This is called Love Money. If your relations require no repayment, you can still offer parts of your startup at a preferential price.
Business Angels
Business Angels are often the first people that you will contact to obtain financing after your loved ones have contributed. They are individuals who invest in your personal business to make a profit if your startup takes off. They are generally able to invest between $150,000-$500,000.
Venture Capital
These are investment funds that contribute to unlisted companies that are still young. They invest the money entrusted to them by others whom they have convinced beforehand.
First employees
The first employees can be paid by accepting a lower salary but by obtaining shares in the startup in return. They are counting on the success of your business.
Investment Banks
At this point, the investment banks can then act and make an IPO (Initial Public Offering) of your company.
The Public
Following the IPO, the general public can buy and sell shares in your company. It is also easier for the founder of the company to sell his shares.
Develop a Business Plan
A business plan is a document that must be created in the initial stages of a business venture. It contains all the information about your future business and aims to appeal to investors. Presentation of the team, product, market analysis, competition, and financial forecasts is highlighted in this document.
It is very important to present a perfect business plan to investors to demonstrate the seriousness of your project. Without a strong and well-crafted business plan, it is almost impossible to raise funds.
If your forecasts are utopian and unworkable, or you have no way of distinguishing yourself from a competition already in place, there is a good chance your investment request will not be successful.
It is also helpful to read your business plan to your loved ones, see what they think, and determine how to make them understand what you need financially. Indeed, the business plan helps develop an idea. Having this document read may give you further insights into the project and save you from making a big mistake.
Do not neglect the business plan. It is a central element to obtaining financing for your startup and is an important element to evaluate the potential of your idea.
Networking
Your network is important! You must never stop expanding and deepening it. Indeed, it is easier to set up a business when you have good contacts.
Lawyers, accountants, business leaders, executives, employees, freelancers, bankers, investors are all profiles that can be useful to develop your business.
Through advice or services at preferential or free rates, you will be able to easily manage your business. Be careful, though; networking works both ways; you must give to be able to receive help in your network.
Keep building your network over time. The more your company gains visibility and credibility, the more you will meet competent and influential people. Feel free to help when you have the capacity, and your network will be more stable and trusting.
Conclusion
Financing a startup is not the simplest step, but it is important. Without money, it is difficult to advance at a suitable pace and to obtain resources.
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