Finding the funds to help you launch and run your start-up can be a scary prospect, especially in the first few months when you’re still getting your business off of the ground. Self-financing is the most popular choice, but applying for grants, loans from the bank, using angel investors or crowdfunding sites are also viable options that you should consider.
But how do you know which is the best option for you?
The following is a quick guide explaining the options available to you.
Self-financing your business is the easiest and most popular way to fund your start-up, but even that can be a daunting prospect. You need to remember that nobody is asking you to sink all that you have in the world into your start-up. You should be smart and start small and allow your business to grow organically. You don’t need to re-mortgage your house!
You don’t need to splash out thousands of pounds on flashy websites or packaging either. We mentioned before about launching a minimal version of your idea. When your business grows and you start making more money you can re-invest into improving things. If your idea is to sell through a live space for example, you could start out by renting an area within a store that is already up and running until you are able to finance your own store.
Tips for Self-Financing
Firstly, know that you don’t have to quit your day job and the security that it provides to start your own business. In the first instance until you start making enough money, run it as a project on the side.
Secondly you’ll need to get your finances in order. Work out how much your monthly outgoings and living expenses are. Are you able to downsize your expenditure in any way? Then make a list of all the start-up costs you’ll need to cover over the first 3-6 months and factor that in. Remember, try to keep your costs to a minimum by focusing on your minimal viable product.
Once you know how much you need to make each month to not only fund your business but pay for your living expenses as well, you can work out how much you need to earn and the hours you’ll need to work in order to bring this money in. Perhaps it means staying in your current job for the time being. Maybe you find you are able to reduce the hours you work, freeing up some time for you to work on your business.
If you are simply not happy in your current job or are currently unemployed you could look into getting an undemanding part time job or a series of different part-time jobs to help you bring the money in. Once you know how much you need to make each month you can break this down even further to find out how much you need to make each week, each day and each hour. By breaking it down in this way it makes it seem less daunting and more achievable.
It’s important to try and create 2 – 3 revenue streams coming in at the same time. This could be from a combination such as the following:
Allows publishers in the Google Network to run automatic advertisements on your site, that are targeted to site content and audience. Google manages these ads, and can generate revenue based on a per-click or per-impression basis. As long as you have the website visitor numbers, this could be a steady stream of income for you.
Create and sell a variety of products such as ebooks, courses, guides, branded T-Shirts etc. If you provide a service, you need to be present in order to make money from it, however, selling products youv’e created will allow you to sell whilst you sleep.
Try selling your expertise via webinars, speaking engagements, Skype or phone consultations (in a group or one-to-one).
Two – Grants
There are many organisations and institutions that offer grants to start-ups to small businesses that it’s almost impossible to know where to start. Firstly you will need to find yourself a good and trusted advisor who will help you to navigate the process and will advise you on the best grants for you. A good place to start would be to join as many relevant networks and associations as you can, including those run by the government. Your peers can be a great source of information and advice, especially those that have already gone through the process. But often you will have speakers from specific trusts who will come in to present their grant programmes to members.
Applying for grants is not for the faint hearted however. The application process can be demanding requiring a lot of time, detail and preparation, and after all of your efforts there is no guarantee that you will receive the grant. Applications usually come in stages and you will have to qualify at each stage before your overall proposal is assessed. You will be required in most cases to produce a full project plan with lots of detailed company information including your projected spend and risk. You must make sure you answer any questions thoroughly and within deadline as, in most cases, failure to do so will mean your application will not be taken any further.
Tips for Applying for Grants
Make sure you do your homework and research what grants are available to you.
When you have identified grants that you would like to apply for, make sure you meet the criteria required before spending time on your application.
Be thorough and put together a well thought-out, professional application that fully answers the brief you have been given.
The application process can be time-consuming and a long drawn out process. Make sure you meet all of your deadlines and be patient when waiting to hear if you have been successful.
Three – Loans
There are a number of banks and government initiatives that offer loans to start-ups and small businesses; you simply have to shop around for the best one for you. Nowadays business loans are often packaged up with fantastic added extras such as business mentoring, help creating business plans and budgets, plus you’ll receive hands on guidance through the entire process, which makes applying for loans a lot easier that applying for grants.
The government have created a multi-million pound fund designed to support new start-ups that are less than a year old – something that banks don’t really do. You will usually only need to produce a business plan to qualify and will not need collateral or a guarantor. Think of them as being like personal loans but for businesses.
Tips for Loans
Do your homework and choose a financial institution with credibility and good standing. Get recommendations from your peers and make sure you choose a loan that is suited to your needs.
Be clear on how much you need to borrow, what you want the loan for and how you intend on paying it back. It’s important to have a backup repayment plan in case things don’t work out as expected. Banks will require you to have collateral or a guarantor to secure the loan depending on how much you are borrowing, so be sure you are willing to take the risk before signing on the dotted line.
Read the small print and get advice if you are unclear on anything. You don’t want any nasty surprises should you miss any payments.
Ensure you have a solid plan in place for receiving payment for your goods and services. If clients do not pay you on time this could be the reason you default on your loan, so figuring out how to manage this is crucial before applying for a loan.
Four – Angel Investors
Angel Investors are affluent individuals who provide capital for business start-ups, often in exchange for equity.
Many investors state that the business idea is only half the reason that they invest, and that rather than investing in the idea or the business, they are investing in the person behind the business, so it’s important for you to be able to speak lucidly about your idea and business model and to show your passion, drive and commitment at every turn.
You can find angel investors online, through networks and associations and through word of mouth. There are now many meet ups all around the world that give you the opportunity to pitch ‘Dragon’s Den style’ to investors. These events are good because you can get valuable feedback and guidance from not only investors but your peers, which can help you to shape your business model or idea. You could also try directly contacting successful business people that you admire and asking for their business advice and guidance. You may find that they will be able to put you in touch with investors or are willing to invest themselves.
Tips for using Angel Investors
Remember that investors will want their money back at some stage. You need to be sure that you will be able to grow your business to where you are able to pay back their investment within an acceptable time frame.
Most investors will want to invest in a business that is already up and running successfully and simply needs funding to expand. They want to see that there is a market out there for your product or service and that you are marketing and selling it effectively. Build fans out of your customers and use social media to spread the word and create a buzz about what you’re doing. If people like what you do they will be vocal about it if you prompt them to be. This hype is attractive to an investor.
Be realistic when valuing your business. You may think it’s a million dollar idea but this doesn’t make it a million dollar business!
Don’t offer too much equity.
Create a tight, professional but exciting pitch that makes investors sit up and listen. You need to keep it interesting to keep them interested!
Five – Crowdfunding
Crowdfunding is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet. It essentially cuts out the middle man getting you the funding you need without the fees that banks impose.
Crowdfunding has become extremely popular and has opened up investment opportunities to the average person not just the affluent. Funders want to be a part of the future success of new and exciting initiatives, ideas and innovations, and with sites such as Kickstarter and Crowdfunder leading the way there are now several sites available with increasing numbers of investors.
There are different types of crowdfunding available however, so you would need to identify which one suits you best.
Entrepreneurs pre-sell a product or service to launch a business concept without incurring debt or sacrificing equity/shares. This has been used for funding movies, scientific research, new technology and inventions.
The backer receives unlisted shares of a company, usually in its early stages, in exchange for the money pledged.
Tips for Crowdfunding
Create a stand-out online pitch. You won’t have long to grab people’s attention so make sure your wording and content are compelling, entertaining, visual and exciting. Tell your story and make it emotive. Don’t just tell people what you are doing or what your business idea is, tell them why you are doing it and how you will be helping others. Make people feel something when they read your pitch. Creating a well-produced video as part of your pitch is a must but keep it short, to the point, interesting, entertaining, inspiring and something they would want to share. This is all about selling yourself and your idea. Do it well and you could exceed your financial target.
Tell potential funders what’s in it for them. Make it an attractive offer but don’t be too willing to give all of your equity away. Think of other ways you can reward funders.
Ask funders who have already invested in you to promote your project to their network. They have already bought into you and your idea so use it to your advantage.
Promote your crowdfunding campaign any way you can. Use social media, write about it on your blog, get your fans and customers to share it, create a story and PR it, post your video on YouTube. Basically do all that you can to shout about it, grow interest and drive people to your crowdfunding page.
Think about the overall amount you are asking for and how much you are asking each person to invest. If your minimum investment amount is $10 you are going to need a lot of investors to raise large amounts. But then, asking for a minimum investment of $1,000+ may reduce the number of people that invest in you. Take a look at other pitches on the site you have chosen for guidance on how to monetize your pitch.
Kickstarter – Best for big ideas
You set a funding target and a time-frame (between one and sixty days) to reach your target. If you fall short, you get nothing. The smart watch ‘Pebble’raised $10.3m in just over a month.
Indiegogo – Best for social enterprise and charities
This operates similar to Kickstarter but you get to keep what you raise even if you don’t reach your target.
Crowdfunder – Best for small start-ups
This UK based site functions in the same way as Kickstarter, but on a smaller scale. The site has raised about £2m to date. Louis Tomlinson from One Direction, recently used the site to raise capital to buy the Doncaster Rovers football team.