When it comes to business strategy, working on one single thought might not work that great. It is mainly true when it is about financing new business.
Diversifying your financial sources might be a great alternative idea. It will not just allow the start-up ventures to work on some of the potential downturns but will further help in improving chances of procuring proper finance to match up with specified business needs.
Remember that bankers don’t see them as the sole funding source for your business. On the other hand, using various types of financial alternatives will show your lenders that you are a proactive entrepreneur.
6 Ways to Startup Financing
Whether you are trying to get hands on bank loans or angel investors, you have all the services sorted out for good. You can even try getting hands on a government grant or business incubator for help. Each source has its own financing with specified pros and cons to it. These points have their own steps to evaluate business. So, it is always a clever deal to actually head for the details before finalizing on the path you need to take.
1. The first step is personal investment:
While planning to start a business, your first investor has to be you. It can either be your own cash or can prove to be collateral on assets. It proves bankers and investors that you are in the market for some long term commitments to projects.
Similarly, it further shows that you are all set to take some risks. So, next time you need monetary help, the bankers and investors might lend their hands.
2. More about love money:
Have you ever heard about this term, “love money?” It is mainly money loaned by parents, spouse, family or friends. For bankers and investors, this kind of loan is known as “patient capital.” Here, the money will be later repaid as the business profit starts hitting the market.
But, before you borrow love money from spouse, family or friends, there are some points you need to be aware of. Be sure to check if your family or friends have that amount of money to lend you or not.
Sometimes, they might want equity in business. Do you want to support that? Remember that business relationship with family or even with friends should never be taken lightly.
3. More towards venture capital:
Always remember that venture capital might not be always necessary for entrepreneurs. Straight from the start, you need to be aware that venture capitalists are currently eyeing for technology based businesses with higher growth potential in some selected sectors. Some of those sectors are communications, biotechnology and information technology or IT.
- Venture capitalists might take equity position in a firm to help carry out promises but with a higher risk project. This means giving some kind of ownership or business equity to external parties.
- Venture capitalists are also known to expect higher return on investments. It is primarily generated when the business plans to sell shares to public. Remember to look for those investors, planning to bring relevant knowledge and experience to business.
There are some venture capitalist teams available to support leading edge firms, positioned strategically in promising market. Like most of the venture capital firms, it will get involved in some start-ups with some higher growing potential. The much preferred focus will be on major interventions whenever a firm needs larger financing to get properly established in market.
4. For the Angels investment:
Angles are basically wealthy individuals or they are retired company executives willing to invest in some small firms directly as owned by others in question. They are primarily leaders in that field, who are not going to contribute the current experience and even some of their contact networks, management knowledge and even technical ones. Angels will finance the initial business stages within a term of $25000 to $100,000. In terms of institutional venture capitalists, they are always looking for larger investments in order of $1,000,000.
- They are going to exchange risking money when they get the right to supervise the management practices of the company.
- In concrete terms, this source mainly involves seat on board of directors and with an assurance of maintaining transparency.
Angels are known to always maintain a low profile. So to meet them, businesses have to contact specialized associations on angels. You can try getting in touch with organization, which helps building capacity for the angel investors. If you want, you can further check for the member’s directory for some ideas about the main person to contact in you selected region.
5. Taking help from business incubators:
Business incubators are known to focus on the high tech sector by offering support for the new businesses in multiple development stages. But, you will come across some of the local economic development based incubators, which are primarily focusing on areas like revitalization, job creation, sharing and even hosting services.
- Most of the time the incubators will come across future businesses and some other fledgling firms to share premises with some technical, administrative and logistical resources.
- The incubator phase is designed to last for around 2 years. After the product has been made ready, this business will leave the premises of incubator to enter industrial production sector on its own.
Businesses receiving such support will operate within the current state of the art sectors like information technology, multimedia, biotechnology and even industrial technology.
6. Government subsidies and grants in town:
Some of the government agencies are able to provide financial assistance like subsidies and grants, as available to business. You have a business network, providing comprehensive list of multiple government based programs at provincial and federal level.
However, procuring government grants can be a tough call. There are some strong competitions and criteria for the awards. Most grants will require the business to match funds, which will vary depending on the granter in question. But once sorted out, procuring grants for your business can be one of the best ways to start your new venture easily.
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Author: Marina Thomas