Be an Early Bird and Get the Best Deal!

Be an Early Bird and Get the Best Deal!

Startup Fundraising: 7 Ways to Raise Funds as a New Startup

Startup Fundraising: 7 Ways to Raise Funds as a New Startup

As appealing as they might appear, turning any startup into a successful business is not a walk in the park.

How often do you hear about a startup failing? Probably more than you can count on your fingers. One of the most prominent reasons for failure is the financial situation. 29% of startups run out of funding and fail (source). Therefore, learning how to raise and manage funds is a critical skill every entrepreneur must have.

But where do you go for startup fundraising? That’s what you’ll learn from this blog. We have discussed the top 7 methods or sources for startup fundraising.

Strategic Fundraising for New Startups

Below, we have listed seven efficient methods to raise funds for new startups in the startup ecosystem.

1. Bootstrapping

Bootstrapping a startup is one of the safest forms of investment in terms of control and ownership. In Bootstrapping, the startup founder(s) gathers the initial capital from their pocket. The founder uses their savings, funds, or profit generated into the startup. Therefore, it is one of the safest regarding ownership because it doesn’t depend on others; it depends on your money alone.

But, there are limitations to bootstrap funding for startups. One of them is the financial strain and limit of your finances. It can result in strained business and personal life. Additionally, limited funds can hinder your startup growth.

2. Crowdfunding

Crowdfunding – as the name suggests, is raising funds from the crowd, aka the people. The startup connects with a third-party website or platform and markets its ideas online to raise funds. They do not offer return or equity to those providing funds. Therefore, it has become a risk-free fundraising method. It is perfect for startups related to some social cause, or the product solves a significant problem.

A few drawbacks of crowdfunding are marketing and an unstable flow of funds. It would help if you marketed your startup to your target audience to raise funds. Targeting your desired segment of customers for selling and raising funds are two very different things. Targeting an audience online for startup fundraising is complex and requires more effort in financial terms. Additionally, there is no guarantee that you’ll be able to raise the necessary funds with crowdfunding.

3. Loans from Financial Institutes

It is a traditional way of fundraising for a startup. Financial institutes provide loans in return for interest. It is one of the safest and most used fundraising alternatives without diluting your ownership. Additionally, you can predict the amount you need to return to the financial institute.

The drawback of loans is that you might need to pay a mortgage, which would be risky if you can’t pay the amount. Getting a loan is easier said than done. They rely on your credit score rather than your startup potential. So, there will be an upper cap on the amount you’ll be able to get based on your credit score.

4. Angel Investors

Angel Investors are individuals, mostly HNIs, providing investment in return for debt with interest or equity. Generally, angel investments act as seed funds for new startups. Often, industry experts become angel investors to help new startups grow. So, you, the startups, can benefit from them to learn and expand their network.

Angel investors often have high net worth, but their industry expertise might differ from yours. They may not be able to provide you with the necessary support. Additionally, you can lose some control over the ownership with equity-based angel investment.

5. Venture Capital

Venture capital is an investment firm that pools money from other investors. These venture capital firms invest a large sum in the startup in favor of equity. The venture capital firms have a team of experts from diverse fields, networks, and other resources to help you grow your startup.

Venture capital firms often demand high organizational control for their invested amount due to the promise of returns to the investors. Usually, they pressurize the startups for fast growth and keep an iron fist in management and decision-making.

6. Government Grants

Payback is one of the most significant challenges of startup fundraising from external resources. But what if you could ditch the worries of returning the capital raised from startup fundraising? Government grants and support programs do not require any returns. A few projects, especially those that are better for society, are often recognized by the government for receiving grants. With government grants, you can raise funds without worrying about returning them.

Startups highly desire government grants. Hence, there is tough competition to get those grants. Additionally, the government tracks how you spend these grants based on their strict guidelines.

7. Joining Incubators or Accelerators

Incubators and accelerators provide a systematic environment for startups to learn and grow. They offer new and early-stage startups the space, knowledge, strategies, and resources to understand how business is run and attain success. They provide a startup fundraising opportunity for the members to raise funds after they have finished their learning journey.

Staying in tune with the schedule of the incubators and accelerators can take time and effort. Additionally, there is tough competition to get scouted or selected by reputable incubators and accelerators.

Conclusion

Fundraising can be a stressful matter for a startup. Mainly because it is one of the reasons most of the startup fails. We discussed seven startup fundraising alternatives from diverse sources that may or may not have risk. It includes sources like your savings for bootstrapping a startup, fundraising with crowdfunding, seed funding from angel investors, loans from financial statements without losing equity ownership, and ample funding from firms in return for significant equity. Based on your needs and the control you need in the startup, you can decide which source of fundraising is suitable for you.

We are 21BY72, an angel investor network dedicated to helping startup founders learn and find funding. We organize a global startup summit for startups and investors to meet to learn, pitch, and invest. Stay tuned for more resourceful content and updates on more startup summits!

FAQ

What are the popular methods for startup funding?

Bootstrapping, angel investment, venture capital investment, loans, and grants are some of the most popular startup funding methods new startups use.

How do you find angel investors for startups?

The easiest way to find angel investors is to connect with an angel investor network like 21BY72. You can get to know angel investors and ask for references as well.

Is bootstrapping my startup a good option?

Bootstrapping a startup is the safest way for startup fundraising. It offers you ownership control and frees you from any external pressure. However, the major downside is that you’ll risk it all with your money. It can strain your finances. If the startup fails, you’ll face a critical situation and lose all your assets.

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