So you have a brilliant idea for a start-up? You go out and create a working business model and have even discovered a co-founder who shares your passion! So what is the next step? The next step is the first one required to transform your idea into reality. From setting up in a fully serviced office space to advertising your brand name, everything requires capital. Let's take a look at the methods available to entrepreneurs to raise the capital required to get your start-up off the ground and to keep it going over a long period of time.
How to raise money
While there might be numerous ways to raise capital, most of these methods can be divided into two broad categories. The two categories are: Debt and Equity.
Debt: Funding through debt capital is the practice of a company borrowing money from a lender with the promise to pay it back on a later date. The advantage to this method is complete control over your business, its functions and profits. A disadvantage to this method is having to pay back the loan with interest in a certain timeframe.
Equity:Equity capital is the capital generated by selling company stock. An advantage to equity capital is that there is no need to pay back investors as they agree to share your risk. On the other hand selling equity at an early stage allows investors to have a say in company decisions. Which means you will have people to please and a reduced profit margin.
Angel investors: An angel investor is an individual with high net worth who provides financial backing to start-up owners and entrepreneurs. This is typically provided in exchange for ownership equity in the company. This person could also be a friend or family member to the person trying to get their business started.
Venture capitalists: Venture capitalists are experts with vast industry knowledge who fund money to business ventures based on the viability of the business. A venture capitalist studies the business model, current returns, valuations and even predicted growth trends before investing. Venture capitalists largely invest in a business only after it has left the initial stages and begun to generate revenue.
Business incubators: Many first time start-up owners lack the knowledge, experience and networks required to build a business. To combat this, business incubators seek to offer growing businesses a range of essential resources to help them get set up. They also provide skill development programs to teach entrepreneurs how to navigate through tough situations.
Crowdfunding: Crowdfunding is the process of using small amounts of capital from a large number of individuals to finance a new business venture. It primarily relies on social media and online sources to raise these funds.
Tips to keep in mind
The above resources will help you in the initial stages of setting up your business. Resources like AccessWork can also help you through alternative solutions such as coworking spaces. While investors hold most of the negotiating power in a pitch, it is important to make them feel like their money is in safe hands. You can build confidence in you by displaying a tested and viable product, complete with statutory compliances, an exhaustive business strategy and a dependable team to execute that strategy. The most important aspect of raising funding for your dreams is a sound business plan that leads to a start-up that lasts.
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