4 sources of alternative funding for your start-up

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:

1. Crowdfunding

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:

  • Equity 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.

  • Rewards-based crowdfunding

    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).

  • Donation-based crowdfunding

    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.

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Len is a tech and business writer who covers small business and startup advice and has appeared in many print and digital publications. He lives in London, UK, where he's also a sub editor on a national newspaper. He loves to travel and has lived in France, Spain, Senegal and Rwanda.

3 Reasons Businesses Fail, And How You Can Avoid Them

We don’t want to put a downer on your enthusiasm, but starting a business can be tough. Research shows that about two-thirds of businesses survive their first two years, yet only about half survive for longer than five. It’s therefore essential to take a sober look at your business, to make sure you’ve got the foundations in place.

There are many reasons small businesses fail, but we’ve selected three of the most common causes. Let’s look at what they are and, more importantly, see how you can avoid them.

1. Failing to Manage Cash-flow

Many new business owners will have gotten used to a monthly pay check in their previous career. They therefore expect that payment from clients will come just as regularly.

Sadly, this is often not the case.

Cash-flow is one of the biggest killers of small businesses. Clients can take literally months to pay for your services, so if you don’t have enough money saved up to keep paying your rent and expenses, especially in the early days, you’ll run into trouble.

How to manage cash-flow like a boss

Before you launch your business, you need to estimate your income and outgoings for year one of the company’s life. To be safe, you should save enough cash to keep you going without any payment at all for at least six months, and preferably longer.

2. Not Enough Planning

Many businesses fail because they lose their way. They start working on the wrong kinds of projects, with the wrong kinds of clients, for the wrong kind of pay. Instead of focusing on a specific niche and working with the right kind of customers, they take any work they can get. This means work is inconsistent, there’s no organized marketing plan, and they bounce from one job to the next until they eventually run out of steam.

How to plan like a boss
It’s essential that you develop a business plan. A business plan is a simple document where you outline:
• Your business’s purpose and goals
• A description of your product or service
• Sales and marketing activities
• Competitor analysis
Key Performance Indicators
• Income and outgoings
By following your business plan, you will focus your energy on the right kind of work and build a solid base for your business.

3. Not Enough Marketing

Many smaller companies and entrepreneurs see marketing and advertising as an unnecessary expense, with little obvious return on investment. To begin with, this might be true, especially if you get a lot of initial business through your network. However, the only way to grow is to make people who don’t know about you (yet) aware of what you do. Failing to do so will mean you only have a small pool of existing customers, and these will likely not offer enough business to keep you going long term.

How to market like a boss
You need to decide on a consistent marketing strategy which is right for your customers and your means. Read our introduction to getting more leads to help get you started.