Starting a business is hard work, with no guarantees of success which makes funding it even harder, but there are options out there. All options need to be carefully considered – cost, equity and control are elements that need to be deliberated in detail in order to create a sustainable business.
Here are some of the options starting with the most obvious:
Costs to start a business are at an all-time low as the digital revolution marches on. Many products offer entry level services for free with extra features paid for only when scale necessitates it. It may take longer funding a business yourself but the reward is keeping control and equity. Think about dipping into your savings or remortgaging your home.
Family and friends
This should be your first point of call. If you can’t convince those closest to you to invest in your product, you need to ask yourself whether there is a market for the service or product you are providing.
Grants are notoriously difficult to get but they do offer an option for free funding and you don’t know if you don’t try. The carrot of not giving up equity is surely worth the effort.
These companies offer office space and management training along with other services. Investigate the options and align yourself with one that can offer you services that support your niche or industry. Business incubators generally take an equity stake of between 5% – 7%.
This is the practice of raising money through a large number of people. This alternative form of funding is generally performed through internet platforms like Indiegogo and Kickstarter. In reward-based crowdfunding, backers are presold products or services and the entrepreneur keeps control and equity, while equity crowdfunding the backer receives shares in exchange for the money pledged.
This is option is great from a cash-flow point of view, but it does come at some cost. Venture capitalists look for large returns, in the region of 5 – 10 times and will generally liquidate the equity stake in 3 – 7 years. It is great that you get your equity back, but you have to be able to afford to buy it back.
Generally, banks want to see credit history, but you may be willing to risk assets by putting them up for security. A solid business plan and verifiable market research will go a long way to smoothing this process
Find a strategic partner who you can offer services in lieu of payment or who is willing to forward payment for future service. If neither of these work, offer equity is always an option.
Keep your head down, keep costs low and good luck!