When one is starting a business the constant need for capital is unavoidable. There are various different forms of acquiring the capital for a startup and every method has its advantages as well as disadvantages. So instead of worrying yourself and becoming indecisive, as to which method would be appropriate to gather money for starting your own company, go through the brief overview of each procedure and decide the right one for your business.
Bootstrapping and obtaining capital for startups have been a long proved and tested method by many reputed startup founders. This method makes you independent of the opinions of investors. You can use whatever little resource you have to take your business to the next higher step. Use your personal savings or home-equity loans and do everything possible on your part to fulfill your long desired dream.
Government grants are a very secured way of getting your startup foundation money. Government grants money to startups for their due market research and to execute their business plan. The only condition provided is that the owners must depict that their plans will finally conclude in producing proper services or goods that can be released in the market. There are risks too. Generally you would have to work under a restricted timeline and show effective results by the end of the deadline. If you are unable to achieve the expected result then a form of fine needs to be paid. However, if you have met the expectations then government grants are not essential to be repaid.
Borrowing money from friends or family is also a good option since such informal terms of getting capital has many advantages. There is negligible rate of interest on the borrowed amount. And most importantly there is no last date to repay back the amount. You can take as much time you need to finish your work and execute your plan and then return the money as and when possible. However when money is mixed with blood, love flies out of the window. You might ultimately get strained relationships and relatives who are interfering into your business too much just because they have paid for it. Annoying, right?
[alert style=”green”]Angel investors and venture capitalists invest in new businesses where they see potential for growth and success. They own about 10-50% stake of the company and provide capital for the startups. You can arrange meetings with angel investors or VCs via Angel Clubs, Open Angel Forums, etc. The only disadvantage is the entire process is a little slow.[/alert]
Many a times customers are willing to provide capital for a business in exchange for customization or discounts at the cost price of products. This is a very good way of acquiring capital. You can offer exciting offers such as free services for a year or so. This in turn brings more investors in the view because the investors have witnessed immense customer support.
Social lending is a new procedure that is slowly gaining approval. Two individuals set their own respective terms and website or any other medium acts as the intermediary. All such loans are unsecured for three years.
Crowdfunding is a nice and innovative method, wherein a large number of people contribute small amount of money to a venture. It doesn’t give away any equity amount and there is no need to return back the money.
Previously the main worry for startups was the funding issue. But websites like Kickstarter has solved all such troubles by discovering ways for founders with brilliant ideas to set up their startup using proper funds. Generally banks and Venture Capitalists are something founders tend to avoid and many of them embrace Crowdsourced Funding. However it is important to know that crowdfunding comes with its own risks. Therefore what one needs to do before acquiring money through crowdfunding is researching on few practical details.
You, being the founder of your startup, are legally liable to it. You need to protect your property legally before you acquire investments from probable investors. Secure your personal assets, as founders are liable to both investors as well as IRS. Classify your idea as LLC (Limited Liability Company). This ensures that your enterprise has a legal liability and the entire profit amount goes only to you. You, as the founder, will be responsible solely for the taxes and not the debit of your company. You will be able to request for an Employer ID number with IRS and also create a Business account for your startup.
Taxes are the most crucial part that must not be ignored in any way. Although the funds attained by crowdsourced funding is considered mainly to be donations, a particular tax amount will still be applicable. Many websites provide information for accountants to solve their queries regarding paper submission to IRS. Whenever 20,000 dollars or more are sent, received or routed, 1099-K form needs to be filled and submitted. This standard procedure must be kept in mind all the time. The best you can do to save yourself worries is to hire a tax specialist.
If you were crowdfunding it would mean that your idea would come under the spotlight. Not only will the investors take note of it, but also the competitors in the market will observe and analyze your services. The Copyright Act protects your idea to the maximum extent. However, just to be on the safer side, appoint a lawyer who can take care of all the legal sides and protect your intellectual property.
Be in constant touch with your investors as communication is very important in building a healthy relationship. At every stage of your product development keep your investors informed. Let them know all that is happening in your enterprise. This will not only get them enthusiastic but also inform them of the problems you are facing and the reason why you are unable to deliver within the deadline. Making regular conversation with the investors will make them feel personally involved with the process.
Give minute attention to every nook and corner of your venture and get rid of all troubles points. In no time you will reach that spot where you will be enjoying the benefits and triumphs of your startup.
When you are in need of capital then convincing your investors is the matter that must be given utmost priority. And you definitely don’t want to ruin such an opportunity. The following things need to be kept in mind while raising funds for your startup.
You might think that raising a lot of money is the best way of starting a venture but that is not correct. Do not be tempted to make a comfortable launching pad for yourself. Even though too much money might seem to make everything fluent for you but when you have fewer resources then you learn the art of capital efficiency. The crucial thing is not how much capital you have with you, but how well you utilize your money. There is hardly any need to hurry when you are trying to establish a successful business. Slow and steady wins the race.
It is of no use approaching an investor who has never before invested in a venture of your category. There are many disadvantages that you will have to face. You have to convince them every time of your ideas. They might develop unreasonable demands that will adversely affect your startup. When the person has no experience in your field he will not be able to provide you with support, advice or adequate encouragement. Everyone needs an investor who can actively contribute to the startup as part of the team.
However, if an investor has invested in any rival company then it’s safe to steer clear of his way. There will be unnecessary clashes in the company. Your growth might be hindered and your interests given second priority due to the other startup. Proper attention and funding may not be provided.
Never meet an investor before doing your due homework. It is essential that you research on the background of the investing company who is funding your startup. Learn more about the type of companies they generally invest in or who exactly are the people who are doing your investment work. If you are not familiar with the intricacies of your investor’s work then it might be troublesome when you are interacting with them. Gather more information from people who have backed from the investors.
Do not take the meeting to be a joke. The first time you are meeting an investor it needs to be serious and briefly efficient. You need to answer their questions correctly and in case you do not know an answer be responsible enough to find out the answer later. This is the time when you need to prove to the investors that your startup has the capability to be the next big thing.
Be sure to do the necessary things and you will earn respect and value from potential investors for your business.