Starting a new business requires a lot of effort and investment, and it can be challenging to secure the necessary funding. However, there are various sources of finance available to help new startups get off the ground. In this article, we’ll explore the main sources of finance that new businesses can tap into to achieve their goals.
One of the most common ways to finance a startup is through bootstrapping. This involves using your personal savings, credit cards, or borrowing from friends and family to fund your business. Bootstrapping is an attractive option as it allows you to maintain full control over your business without having to answer to investors.
Crowdfunding has become a popular way to fund a new business. It involves raising small amounts of money from a large number of people through online platforms. Crowdfunding platforms like Kickstarter, Indiegogo, and GoFundMe have made it easier for startups to connect with potential investors and supporters.
Angel Investors and Micro VCs
Seed funding is the earliest stage of venture capital financing. It is normally provided by angel investors and micro VCs in exchange for equity. Angel investors are individuals who invest in early-stage startups in exchange for equity. They typically have a high net worth and are willing to take risks in exchange for a potential return on investment. Angel investors can provide funding, mentorship, and valuable connections to help your business grow.
Seed funding is normally used to finance a startup’s initial costs e.g. product development, market research, and business formation expenses. The amount of money raised in a seed round is usually between $0.5 million and $2 million, however it can be less or more depending on the startup’s needs and the investors’ appetite for risk. The typical valuation for a startup raising a seed round is between $3 million and $6 million.
Venture Capitalists (VCs)
Venture capitalists are investors who provide funding to startups that have high growth potential. VCs typically invest larger sums of money than angel investors and expect a higher return on investment. VCs also provide strategic guidance and mentorship to help startups achieve their goals.
Series A funding is normally used to finance a startup’s growth e.g. hiring new talent, expanding into new markets, and increasing marketing spend.
- Series A: funding round is usually $2 million to $15 million and the typical valuation of a startup is $10 million to $30 million.
- Series B: funding round is usually $5 million to $40 million and the typical valuation of a startup is $30 million to $80 million.
- Series C: typical valuation of a startup is $100 million to $150 million.
- Series D: this is a little more complicated than the previous rounds. Most startups finish raising money with their Series C. However, there could be a few reasons a startup may choose to raise a Series D.
Bank loans are a common way for businesses to secure funding. However, obtaining a bank loan can be challenging for startups as they may not have a proven track record of revenue. It’s important to have a solid business plan and financial projections to increase your chances of approval.
Grants are another option for new startups to secure funding. Grants are typically provided by the government, nonprofit organizations, or private foundations. However, the competition for grants can be fierce, and the application process can be time-consuming.
Incubators and Accelerators
Incubators and accelerators provide funding, mentorship, and resources to startups in exchange for equity. They also offer valuable networking opportunities and access to investors. However, incubators and accelerators can be competitive, and startups must have a unique and innovative idea to be accepted.
Starting a new business requires funding, and there are various sources of finance available to new startups. From bootstrapping to crowdfunding, angel investors to venture capitalists, small business administration loans to bank loans, grants to incubators and accelerators, startups have a range of options to choose from. By carefully evaluating each option and selecting the best fit for your business, you can secure the necessary funding to achieve your goals.