There are many ways startup companies can raise money. Once you decide to start your own business, one of the most critical factors is funding your idea. Many entrepreneurs and startup founders think they should save money to invest in business growth. However, there are many other options available. Most startups rely on a combination of fundraising options, such as angel investors, venture capital (VC) funding, and microloans, as a way to get off the ground and stay in business.
Before you go on your mission, be sure to research taking outside capital. Make a list of pros and cons, and decide the best options for your business. As a first step, understand how much money you will need for your startup, and think about the cost to keep your business on the float. That said, every company has its capital requirements. For example, brick and mortar stores will have insurance and inventory burdens that an online business may not. Finally, once you have a good idea of your costs, you can start preparing to raise money.
Crowdfunding your business
Crowdfunding is quickly becoming a popular way to help fund a startup. We will most likely see more of this type of financing in 2022. In the traditional approach to crowdfunding, you offer a first-run product or some other incentive in exchange for a monetary contribution. Contributors receive no equity and are not entitled to ask for it. Some startups find success through crowdfunding platforms. With crowdfunding, startups can raise money via the internet through different platforms. This type of funding usually requires some basic marketing, as well as a robust network of friends and family in order to succeed.
In Europe, a new ‘Crowdfunding Regulation‘ suggests investors must apply to the service provider for classification as knowledgeable investors. Furthermore, for investor protection, the ECSP Regulation distinguishes between knowledgeable and non-knowledgeable investors.
If you’re interested in equity crowdfunding, carefully review the requirements of the EU Commission.
Accelerators and Incubators
Depending on your industry, you may want to apply for accelerators or incubators to start your business. These programs can support early-stage companies with mentorship, operations, marketing, and access to capital. We have a couple of good incubators in Europe. For example, in Croatian city Varaždin, we have a startup incubator that gives opportunities for young people and a secure environment for growth and development. One of the top incubators in Europe is Founders Factory in the UK. The incubator is a venture studio and startup accelerator.
Startups enter incubator or accelerator programs for a fixed time and often work alongside other emerging brands in their industry. Therefore, it is worth considering if your business is growth-driven and competitive. That way, you will know if this is the right option to raise money for your startup. If you decide to take this opportunity, look for accelerator and incubator programs in your country. There are many across every country in Europe and beyond.
Angel investors are individuals, groups of people, family, and friends who invest in startups or small business ventures. The funds that angel investors provide may be a one-time investment to help the business get off the ground. But, on the other hand, it can be an ongoing injection to support and carry the company through its difficult early stages.
Angel investors commonly provide more favourable terms than other lenders. This is because they usually invest in the entrepreneur starting the business rather than the viability of the company. Your angel investor will have a say in how the business is run and will also receive a portion of the profits when the business is sold. According to some related articles, diversification of portfolio companies and improvement of investment networks are the main reasons why angel funders are interested in investing in startups. So, what makes a startup attractive to angel investors? Companies with a solid business plan and realistic and attainable projections are very appealing to angel investors and venture capital networks. Another important factor is the charisma, experience, skills and dedication to the profitability of the founder.
To find angel investors, look for local angel groups, where like-minded individuals pool resources to make a more sizable investment as a group. Another great opportunity is to join networking events where angel investors are networking to find their unicorns.
Venture Capital for Startup to raise money
Still, wondering how to raise money for a startup? The best bet for some small business owners is to find a venture capitalist to fund their business. Furthermore, venture funds are a short-term cash input to enhance a startup’s growth. Most venture capital firms look for startups with huge market potential, technology that sets them apart from other companies, and incredible management teams. Taking on venture capital means taking on the expectations of VC firms. Therefore, venture capital can help fund early-stage companies if they promise a good return on investment. Before you seek outside money from VCs, you will need to understand your strengths and weaknesses. Think critically about how your business stacks up to the competition, and know your go-to-market strategy.
Moreover, you should prepare a good pitch that walks investors from the original concept to a commercially workable idea with clarity and passion. One of the rules of preparing a pitch is to be specific and convincing. Describe a giant concept that has the potential to earn outsized returns and generate actual wealth for traders.
If you are still wondering how to raise money for your startup, look for a financial advisory firm to help you navigate through these stages. Our team at VX Associates can help you with venture capital funding or financing solutions. Our extensive network in the venture capital industry provides us with a competitive edge in advising companies who are seeking venture capital investments.