Ways to Seek Funding for Start-ups

There are a number of ways which can be used in funding start-ups. The way of funding is chosen based on the type of business and the products and/or services that business deals in. Most common ways of financing start-ups are Personal Financing, Debt Financing, Crowd Financing, Venture Capital, Government Funding etc. Each of these way has its own advantages and disadvantages. But the most important thing that determines the financing method is the amount of capital required.  

Funding Start-ups

Following are short descriptions of some of these funding options for start-ups-

Personal Funding

This is the most common one. Everybody finance his or her start-up with his or her own money. Personal Funding also includes funds taken from friends and family. But this is an ideal funding option only when the capital requirement is too low. In medium and large capital requirements, it may not be an ideal option.

Debt Financing

Debt Financing refers to the borrowing of fund from different sources like bank and financial institutions with a promise to pay a certain percentage of interest along with the principle amount of the loan at a stated future date. This financing is sometimes called as leverage. Most Debt Financing require Collateral. People who fail to finance start-ups from their personal sources, normally goes for Debt Financing first.

Crowd Funding

This is a way of funding where general people are called upon to donate certain amount of fund for a proposed business/given project. In this case, people who donate are rewarded with special honor for their kindness. This is commonly known as Donation Based Crowd Financing. This type of funding gets successful when public like the project or proposed business. In Donation Based Crowd Financing, businesses give something like t-shirt, ecards, pre-released CDs to the people who donate for the business start-ups. Sometimes, people who contribute to the fund are given business equity which is known as Equity Based Crowd Financing. Recently, both donation and equity based crowd financing have become very much popular among businesses.

Angel Investors

These are informal investors who in most of the times are affluent and provide fund to start-up businesses and take ownership rights. They organize themselves in a way that they can manage funding for large businesses as they gather lots of resources in groups which is known as Angel Network. Independent research suggests that businesses financed by Angle Networks have a greater possibility of succeeding than those funded by other means of financing as Angel Investors are very much calculative and prudent in investing their money. 

Private Equity Financing

Private Equity Financing refers to equity securities that are not traded in stock exchanges and are sold privately to interested people. Basically private limited start-ups use this type of funding.

Venture Capital

Venture Capital Investors are the people who have huge amount of fund and want to invest in firms which are young and need fund for early development and expansion. If you can convince Venture Capital Investors by explaining your business idea, there is a huge possibility that you would have fund from them. But, Venture Capital is an ideal source of financing only for start-ups which need large sum of money initially. In most cases, Venture Capital Investors want to take opportunity of new technologies and products.

Government Funding and SBA

Sometimes government funding and SBA (Small Business Administration) can be an ideal way of funding start-ups. All you need to do is to follow certain criteria (set by govt or SBA) to have such funding facilities. In the past few decades, SBA has helped thousands of small businesses to raise their start up capitals.

So, these are common forms of funding options for start-ups. For small businesses with small capital requirement, personal and debt financing are ideal. On the other hand, for large business start-ups, crowd finding, angel financing and venture capital financing are ideal ones.