The costs of starting an online business are at an all-time low.
At first you may not need staff, hire premises, buy work equipment or pay bills.
But you do need money to grow…
Below are 7 ways you can fund your business:
1. Fund your start-up yourself: bootstrapping
90% of entrepreneurs save up and fund their own business. It may take more time before you can kick off, but the advantage is that you don’t have to give up any equity or control.
The biggest tech companies bootstrapped for a while before taking investment, like Airbnb, Facebook, Apple, eBay and more.
2. Get support from friends and family
The second most popular funding option is to get the first round of money from friends and family. They are easy to find and they already know you.
You can either make your family or friends co-founders and pay them % of the profit as you grow or pay them back the money they lent you (likely without an interest).
3. Join an accelerator or an incubator program
Early stage start-ups often turn to a start-up accelerator or a startup incubator for help with funding, office facilities and consulting.
Founders get help to quickly grow their business and increase their chances of attracting top Venture Capital firms to invest in their start-up later on.
There is a difference between an accelerator and an incubator programs:
The key difference is that accelerators “accelerate” growth and scale of an existing company, while incubators “incubate” disruptive ideas and build innovative business models.
Accelerators and incubators are mostly funded by VCs, who want to maximize their chances of spotting a great investment early on.
4. Venture Capital Funds
Most businesses do not qualify for Venture Capital. Your chance of getting your company backed by VC is 0.0005%.
Venture Capital is a private firm that is invested in high-growth companies in exchange for equity.
Risk is usually high for investors, but the downside for a start-up is usually a loss of control in company’s decision making.
Investors in Venture Capital firms are typically very large institutions such as pension funds, financial firms, insurance companies, and university endowments—all of which put a small percentage of their total funds into high-risk investments.
VCs generally make investments with the goal of generating significant returns that will be released when the company is sold or gone public.
For start-ups, that want an access to capital markets (buying and selling equity and debt) Venture Capital is an essential source of money.
5. Reach out to the Angels
The word “Venture Capitalist” is sometimes used interchangeably with any venture investor, but there is a difference between VCs and Angel investors.
VC firms are organized as funds, much like hedge funds or mutual funds.
Angels, on the other hand, are rich individuals with net worth of over a million, who are investing their personal funds into a potentially rewarding business.
Most major cities with thriving start-up culture, have groups of local high-net-worth individuals interested in supporting start-ups, and willing to inject amounts up to a million for the best ones.
Use online platforms such as Gust to find them. Gust lets you browse Angels by the industry.
Like with VCs, you have to introduce the concept of exit strategy when pitching your business to an Angel. Exit strategy is a strategy for selling your company or going public.
6. Try crowdfunding
Crowdfunding is the newest, most democratized way to raise cash for your business.
With crowdfunding, members of the public can donate £5, £10, £100, £1000 or more in exchange for a product, equity or a reward.
The advantage of crowdfunding is not just money, but it also helps to create a base of early customers and advocates.
7. Request a Small Business Grant
Small-business grants are government funds supporting new technologies, important causes, such as education, medicine and social needs.
A good place to start is Grants.gov, which is a searchable directory of more than 1000 federal grant programs.
The process is long, but it doesn’t cost you any equity.
All the 7 preceding sources require hard work and commitment. Nobody is waiting with open arms to give you free money just because you have an exciting business idea.
Every funding decision is a complex trade-off between paybacks, ownership and control.
You always have an option(s).