The Startup Funding Types: Your Secret to Founder Success

loan type

If you run a startup, you know how difficult it can be to find funding. But you also know that you need to work toward garnering as much money as possible for your startup’s operations.

So what are the different ways that you can garner funds for your startup?

There are a variety of startup funding types that you can consider for raising capital for your business.

We’ve prepared this guide on the different startup funding types so you can decide which type or types are best for your company’s needs.

The Guide To Startup Funding Types

The first thing to do is to determine how much funds you need for your startup. You also want to research on how to properly start a business.

Once you have done this, you want to carefully consider what you need immediately and what can be put off. As a startup, your business will be scrutinized thoroughly. If you need to hire 100 employees and pay them a handsome amount, you will have to defend this viewpoint.

Here’s how you can find funding for your startup.

Business Loans

You can find the right loan type for your company by going to a bank or a lender. The most common type of loan is one from the Small Business Administration (SBA). This type of loan is backed by the federal government. The lender will approve you for a loan and then the funds come from the SBA.

If this doesn’t work, other options include taking a short-term loan. You can find a lender that can lend you a small amount of money for a period of up to 18 months. This works if the funds you need for your startup aren’t a high amount.

Another way is to reach out to your friends and family. They have always been your support system and can continue to help you as you embark on a business venture.

Crowdfunding

This is one of the best options for raising funds for your startup. Crowdfunding has established itself as one of the unique startup funding types as well as one of the most effective. Many of the products and brands you love were started by crowdfunding — including the popular card game Cards Against Humanity.

You can use services such as Kickstarter, IndieGogo, Patreon, SubscribeStar, and others to raise funds for your startup. You can offer incentives for others to donate to your startup. They will give you the funds you need to run your startup and you will give them a reward in exchange.

Venture Capital

This is what many startups seek — particularly if they need to raise a six-figure amount. To gain funding from a Venture Capital firm, you have to prepare a great proposal.

This proposal will get presented to the board of the VC firm. They will determine whether it’s worth their time, effort, and money to invest in your startup. As a result, you have to know how to put together a great proposal and defend it. Being able to challenge scrutiny and defend the importance of your startup’s vision is key.

Your startup will likely only be considered by VC firms if it has already garnered a lot of interest. If you are selling a product, there should be a prototype of the product for the VC board to observe.

If you are selling a service, consider letting a small group use that service. If you gather feedback from this group you can present it to the VC firm as proof of your startup’s importance and credentials.

Angel Investors

If you want to seek funds from investors but don’t need the large sums that VC firms offer, the next option is to go to Angel Investors. These investors are known for offering smaller amounts of money to fledgling startups.

They are more accessible and are perfect for startups that are still in their initial stages. An angel investor can be a single person or it can be a small firm. Angel investors are also renowned for their expertise in a particular area.

If you are running a startup in a particular area, you might want to consider reaching out to an angel investor who has experience with the industry.

Bootstrapping

If you are unable to seek funds from outside sources, the remaining option is bootstrapping. This means that you raise the money on your own from your efforts. For example, if you have a part-time or full-time job, you should use some of those funds to finance your startup.

Any earnings from your startup should go directly back to funding the startup. Many founders forgo their salaries to raise funds for their startup. You should also look at cutting expenses to have as many funds as possible for your startup.

Often, to cut on expenses a startup has a small team during the bootstrapping phase. You and your team will have to wear many hats. Instead of hiring an Accountant at first, you should do the bookkeeping for the startup. Instead of hiring a Marketing Manager, you should be involved in promoting your startup on your own.

Try More Than One Approach

Finally, you should always try more than one approach for raising funds. The great thing about these different startup funding types is that they work for different stages of your company.

For example, you can start by bootstrapping. Once your company is off the ground, you can start a crowdfunding campaign as well as ask your friends and family.

As your company grows, you can seek an angel investor to help you get to the next phase. Once your company has been around and you want to expand it, then you can seek a Venture Capitalist.

Raise Your Funds

Now that you know the different startup funding types, you are ready to raise the funds for your business. Try these different approaches and you’ll see your startup growing and your entrepreneurial dreams coming true!

Read more great content on business, entrepreneurship, and running startups on our website.

About the Author: Mike

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