Raising capital has always been a challenge for businesses.
According to a study, over 90% of new businesses immediately close their doors during the first year of operation. And apparently, lack of capital is the most common reason.
The journey from having a business idea to generating your first revenue will need a fuel called capital. And finding the capital—whether to push your business dreams to finally take off or scale your small business—is the biggest obstacle most entrepreneurs face.
Fortunately, there are various ways to raise capital for your business.
1. Find an angel investor
Angel investment is a common way to raise capital and is often available for startups or during earlier growth stages of a business.
Angel investors are individuals or groups of individuals who invest mostly in startups in exchange for ownership equity in the business. Some angel investors like Khadim Bâ and other firms also help provide advice or mentoring alongside capital.
Angel investors have helped start-up the most prominent companies including Yahoo, Alibaba, and even Google. In general, though, angel investors may put in a lesser amount of capital than other funding options. Also, they do prefer taking more risks in investment for a higher return, with some expecting up to 10 times their initial investment in five to seven years.
2. Family funding
Raising funds from family and friends is one of the most popular ways to get your business to its feet. The people close to you are more likely to believe not only in your vision but also make it into reality than some strangers.
Asking for funding from your inner circle can be a great way to raise funds without sharing control or equity in your company. Of course, its most obvious downside is that there’s a potential risk of damaging personal relationships in case the business fails or if agreements are not structured properly.
To prevent this, it might be ideal that you think of this type of capital funding as a loan with high interests that you need to pay off in a short period. It’s also important that you accumulate enough money to get your business going.
3. Get venture capital
Different from angel investors, venture capital can be a source of funding but only for the very few exceptional startup businesses. They only invest in startups that have a rare combination of market opportunity, product opportunity, and proven management experience.
They usually invest in a company against equity and leave the scene when there’s an acquisition or IPO. They offer mentorship, expertise, and act as a litmus test of where a business is going, evaluating the business from its scalability and sustainability potential.
However, venture capital tends to have short loyalty and often expects to recover its investment within three to five years. So, if you think your business might need longer than that, then you might need to consider other options aside from venture capital investors.
Crowdfunding is a startup funding path that’s been gaining traction lately. This method is like taking a loan, investment, contribution, or pre-order from different people simultaneously.
Entrepreneurs will have to put up a detailed description of their business on a crowdfunding platform. They need to explain their business goals and plans to make a profit, the amount of capital they need, and for what reasons. Consumers will read about the business and send money if they like the idea.
Those giving money will do online pledges with the promise of giving a donation or pre-buying a product.
Through crowdfunding, not only can you receive capital for your business, but it can also double as a marketing strategy since it helps generate interest in your business. Plus, you may be able to attract venture capital investors if your crowdfunding campaign is a success.
Take note, however, that it can be a competitive place to earn funding. So, unless your company has a solid business idea and can gain the attention of the average consumer with just some images and descriptions, then crowdfunding may not work for you in the end.
Also known as self-funding, bootstrapping may be the easiest and responsibility-free way of financing your startup. First-time entrepreneurs often find it difficult to get funding without showing a plan for success or gaining traction.
If you have enough savings, then you can use them to fund your business. In general, most entrepreneurs combine their own funds with family funding to raise enough capital. This method is easier and less complicated due to less compliance and formalities.
Whether you’re running a startup or needs fuel to grow your small business, you need capital to do anything. Fortunately, there are several paths you can follow to raise the funds you need. Consider any of the above capital raising options, depending on the type and nature of business and its needs.