The hardest part of forming a start up company is developing a unique idea, so if you’re reading this, chances are you have already completed that step, so well done. The next challenge facing you is to find sources of funding to fuel this dream, here are the five most effective forms of financing your goals, as shown from other successful start up ventures.
1. Family and friends
It sounds simple, but many investors wont begin to take you seriously if you cannot convince those closest to you to believe in your business concept. Therefore, getting them on board is vital, especially if they are able to lend you some money in the process. You dont need to deploy the hard sell, just illustrate your passion and your strategy, the rest will fall in place. You should not put people in a position whereby they feel guilt tripped into funding you, nor should you ask people whom you know would be financially compromised to aid you. Therefore, be sensible, you dont need to ask all your facebook friends, just those close to you will do.
Whilst it is important to be positive about your prospects of success, you must remain realistic about the prospect of failure, as many startups fail. Even if friends and family cannot support you financially they may have useful experiences and connections, try to utilise these, they can often be as valuable as financial support.
If you beleive that there is a large target audience who are in genuine need of your product, perhaphs it has a humanitarian benefit or it simple would benefit society, then crowdfunding is an excellent choice. In addition to raising funds, crowdfunding is an excellent way to market and advertise your product, to get people talking about it and spreading the word.
3. Venture Capitalist
The basic concept behind Venture Capitalists is that you are essentially given funding which you will not need to return. Instead of financial reinbursement, they will take the part of your equity instead and may also want to have an influence over your business decisions, so better carefully read any documents you will sign with them.
In this agreement you will partially loose your freedom in exchange for getting a lot of money, this will have to be something which only you can determine is worth it. When making this decision, try to think of the longevity of the business, in five years time you may value this freedom in decision making, of course you cannot tell what the future will bring but bare this in mind before signing over significant amounts of control.
4. Bank loans
This is one of the least popular forms of funding as banks are often very hesistent to lend to startups as they are afraid that the business will go bankrupt and they won’t get their money back.
They are not worried of lending money to well established entities with a proven track record and a good history of bringing in a good amount of cash, but they rarely trust budding entrepreneurs.
With this being said, it is still worth applying for a loan. In some cases, the bank may trust people with a good credit card history and if you have some assets which can be liquidated to pay the loan back, then you have a shot at convincing the bank that you can be trusted with their money.
5. Personal funds
Through time and patience you can save up to fund your own start up, whilst this takes time and patience , it limits your accountability and increases control. The only risk is placed against yourself, and comes at the cost of working more and spending less. Whilst personal funding is good, it can often take time, by which someone may have developed the same, if not better idea.
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