Until just a few years ago, the only way to secure funding for your start-up would have either involved a trip to the bank or some phone calls to wealthy relatives. But, the internet has changed all that and there are several new ways you can drum up start-up investment on- and offline.
Here are four exciting new ways your business can secure funding:
While crowdfunding is not a brand new concept (some forms of crowd lending have existed since the 1700s), the last five years has seen a rapid expansion in online platforms which support this way of raising capital. Crowdfunding involves promoting your product, project or innovation on one of the various platforms out there and asking members to invest.
There are three main kinds of crowdfunding:
Investors will invest in your company (usually with an entry point of $1,000) in return for a share in your business. If you do well, they get the dividends. If you fail, they lose their money. Angel List and Equity Net are some of the big names, although research platforms specific to your country and industry too.
Want funding for your film, cultural event or invention? Rewards-based crowdfunding lets you advertise your project and ask for investment. On platforms like Kickstarter, investors rarely get a cash return, but expect some sort of reward for their donation (such as free tickets or a copy of whatever it is you’re producing).
For charitable activities, donation crowdfunding platforms allow you to tell the world what you’re doing and ask for money to help.
Peer-to-peer (P2P) lending
Websites like Lending Club (among many others) allow you to advertise your business and borrow money from (mainly) private individuals. Typically, you receive cash from a few individuals at a lower rate than traditional banks. You can then negotiate your terms of repayment. If the investment is in your business, this might be preferable to equity crowdfunding because you don’t give up a stake in the company.
3. Angel Investors
Angel Investors tend to be wealthy individuals (or sometimes networks) who take an interest in a start-up’s idea and provide cash up front. There’s usually little expectation of immediate returns (although they may expect shares), and the investor might also provide business advice.
Again, Angel Investor aren’t exactly a brand-new concept. But, it is becoming an increasingly popular way for high-net-worth individuals to invest their cash. Depending on the start-up scene in your city, you could meet Angel Investors at networking events, by pitching at start-up spaces or via various Angel Investor websites.
4. Venture Capital
Venture Capital funds tend to invest in more established businesses which have a proven track record. Obtaining start-up investment is normally a tougher process, and you will usually have to hand over shares and even control of some decisions-making. But, Venture Capital funds also usually have the most money to invest and could give your business the funds to go global.
However you fund your business, you need to make sure you’re following best practice with your money. Read our accounting essentials blog here.