There are different ways to finance the growth of your business. No matter if you have been running a company for 3 days, or 5 years, any kind of cash flow that would boost up your business is always welcome. Depending on the exact business plan and industry niche, various methods may work in certain situations. Here, we will present you with a couple of ways to raise money from different sources, with all the advantages and pitfalls of each method.
Friends & Family
Raising funds for a startup business from friends and family is one of the very popular approaches. It is quite frequently the easiest and most convenient way to obtain funding for a startup company since friends and family care about their beloved ones and want to see them succeed. On the other hand, there are certain pitfalls of this funding method. Statistics show that the percentage of startup businesses that fail in the first couple of years is pretty high. Hence, such a failure could lead to ruined personal relationships with your closest ones.
In the last couple of years there has been a rise of popularity of websites where individuals or small business owners come with their ideas and ask general audience to fund their business with their personal funds contribution. Due to the increase of popularity of this funding method, legal changes have been initiated in order to adjust certain laws to even further improve such method of business funding. Contributors usually base their investments on a reward model, quite frequently that being a service or a product that will be offered by the start company they invest in.
Regardless the world economic crisis, a decent number of startup businesses continue to raise loans from banks for their innovative business ideas. Even though banks require all sorts of guarantees that your business will pay them back, this is still the most popular way of business funding.
After succeeding in business with their own startups, successful entrepreneurs are frequently willing to re-invest some of their hard earned capital into other startup companies. Such investors are called “Angel” investors. Besides the sheer funding, angel investors can significantly contribute to startup businesses with their business connections and advice. Therefore, this kind of funding and cooperation can be beneficial on multiple levels.
Venture capitalist investors
Venture capitalists are those investors that provide capital to companies in an early stage of their development, when they need additional funds to expand to other markets or to cover additional products or costs. Although this kind of investment carries one of the largest risks for venture capitalists, the chances of high returns appear to be worth the risk.
Finding another partner, or more partners for your startup ideas and business is an excellent solution in cases where you just don’t have enough funds to get the ball rolling. Nevertheless, it is very important to find a person with a similar business goal and way of thinking as yours. Starting up a new business with another person and then finding out after a while that they have a completely different set of goals or ideas on how to do business can make a nightmare of your life. Hence, it is advisable to have some sort of a buyout agreement arranged at the very beginning in order to easily handle difficult situations later on should one or more partners just simply decide to leave the partnership.