5 of the Best Ways to Raise Funds for Your Startup
When it comes to launching a startup, you’re usually faced with two options: plunder your savings or look for outside investment. But there are other options available to you and multiple ways that you can fund your business prior to launch.
1. Try a Working Capital Loan
PayPal Working Capital is a great option for startups based on a strong financial foundation. It’s a loan that won’t hurt your credit rating or make unreasonable demands on your time or bank balance.
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You can apply in a few seconds and get automatic confirmation, with the funds landing in your PayPal account within seconds. The only obligation thereafter is that you repay at least 10% of the loan every 90 days, and these payments are subtracted from your incomings. There is no interest, but you will need to pay an initial fee that is added to your balance.
For instance, if you borrow $10,000, you may be asked to repay $11,000 and can choose to do so in increments ranging from 10% to 30%. If you opt for the former, you will repay $1 for every $10 that you earn.
PayPal Working Capital requires you to have existing cash flow, so it only really works if your business has already launched and is already earning.
2. Ask Friends and Family
Most business owners turn to friends and family when they need the funds to launch a startup. It’s an option that will be more viable for some than others as it all depends on how willing your circle is and how much disposable income they have.
To make it a more enticing prospect for them, don’t simply ask for a loan. Offer them a share of your business instead and bring them on board.
Don’t get trigger-happy with those shares, though. You don’t want to give everything away before your business has even launched. A token gesture should suffice. You can also stipulate a clause that allows you to buy back their shares for 50% or 100% more at a later date. That way, you’re not selling something for $10,000 that could be worth millions down the line.
3. Crowdfunding
Crowdfunding is a great way to fund a good idea, but it’s not foolproof and it’s certainly not easy. You can’t simply launch a campaign and then wait for all the investments to flood in.
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You need a good idea, something original, enticing — something that captures the imagination of your intended backers. It’s also important to give them an incentive to back your business, whether that means offering products, merchandise, advice, or dinner with the owner.
The problem with crowdfunding is that a lot of the money you receive will be lost in fees and marketing costs. Once you consider the cost of the rewards, there won’t be much profit left.
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To ensure maximum profitability, a crowdfunding campaign needs to be very carefully planned and managed. Don’t just throw money at advertising and give away big rewards. Think about what you’re offering and what you’re spending, and make sure you can actually follow through with your promises.
4. Bootstrapping
Bootstrapping a business means backing it with your own money.
It’s something I always recommend, as there are numerous benefits. The most obvious is that you maintain full control of the business and don’t have to answer to anyone else’s demands or expectations.
But there is also a level of accountability that you don’t get with VC-funded businesses.
Imagine that you’re launching a brand-new e-commerce business and you’re selling a food/beverage product that you make in your own kitchen. If you back the business yourself, you’ll care about every penny earned and saved. You’ll keep working from your own home to reduce overheads and you’ll work 24/7 to do what needs to be done.
If someone else is throwing money at the business, you’ll invest in a large team, a new location, marketing managers, and everything else that goes along with a modern startup.
If you have a major lull in sales when you’re building the brand yourself, it doesn’t matter. You just need to adjust your time, refocus your efforts, and keep things ticking. If the same issues occur with a VC-backed business, those dry periods could lead to massive losses, leaving your business crippled.
5. Take it Easy
Oftentimes, the best way to fund your startup is to reduce the initial expenses. Buy less stock, trim your marketing budget, hire fewer team members, and move slowly. You can still grow, profit, and meet your goals by taking things easy — you don’t need to go from 0 to 100.
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Many startups fail because they invest too much too soon. They leave themselves vulnerable and are always one slow period or one catastrophe away from complete destruction. By reducing your investment and taking your time, you can avoid such issues.
More Ways to Raise Funds for Your Startup
The above solutions are a great alternative to traditional routes of investment, but that doesn’t mean that you should stick with those tried-and-tested methods. If the options above don’t work out for you, speak with venture capitalists and angel investors. They can back you and your business and could be the catalyst that you need to launch and/or grow your startup.
How to Raise Capital For Your Business & Startups with Matt Higgins
For more information about attracting investors, read this guide with Shark Tank investor Matt Higgins or watch my discussion with him here.