As a founder, you’re going to face many challenges as you grow your startup. One of the most common challenges is finding proper financing to get things started. Whether you’re expanding your team or developing new products, things can get expensive quickly. In fact, they are usually much more expensive than you anticipate.
That all said, it’s important to be aware of all the potential financing options for your startup. Below are five ways you can finance your business.
Starting a business is incredibly risky. That being said, founders are typically reluctant to throw their own money into the project. They justify this by risking their time for no pay. First and foremost, you should expect to go months without paying yourself. In addition, you are awarding yourself with equity, and as a founder you likely have the most equity by far.
It’s important for every founder to invest some of their own money into their business. In fact, it should be the first place you look when trying to finance your business.
Take Elon Musk for example, he has invested millions (if not billions) of his own assets into his companies. This shows that you’re confident in your product and are willing to put your own money behind it.
When traditional investors are brought into the conversation, people usually think about venture capitalists. Another investor that is becoming more popular amongst early stage startups are angel investors.
Angels standout from the mix because they are typically more hungry to get their hands in a bunch of different projects. They typically invest smaller amounts compared to venture capitalists, however they are less likely to put contingencies on the funds.
Depending on what kind of business you are building, rewards-based crowdfunding may be a great option for you. In this type of crowdfunding backers will typically contribute a small amount in exchange for some type of reward.
In most cases, this reward is actually the product being built. Larger investments may allow backers to receive additional perks like being able to fly out and meet the founders. If you’re building a physical product, rewards-based crowdfunding is a great way to validate your business before actually building the products. That said, you need to make sure you can deliver on your promises.
The most popular rewards-based crowdfunding platforms in the United States are Kickstarter and Indiegogo. If you want to have success on either of these platforms I recommend you spend the time creating awesome content and deliver a clear message.
Equity crowdfunding is when investors will pledge a larger amount of money in exchange for equity in your company. This type of crowdfunding is typically used for more established companies looking to quickly scale.
Crowdfunder is one of the most popular equity crowdfunding platforms in the United States. Keep in mind that equity crowdfunding deals with the actual sale of securities which means a lot more regulatory hurdles to go through. You can take a look at some of the requirements here.
As I mentioned above, financing your business is one of the toughest challenges you’ll face. You need to be resilient and explore all the options available to you. That said, make sure you take note of the four financing options listed above.