You might have a million-dollar idea, but you probably do not have a million dollars on hand to turn your idea into reality. Many great ideas have died before they ever had a chance to live because their creators lacked the funds to put them into action. If you have decided that your idea is worth pursuing and turning into a business, then you need to know what funding options are available to you. The best type of financing for your startup will vary depending on what kinds of products or services you hope to offer.
Crowdfunding is a method of financing in which large groups of individuals make donations in support of a cause or project. Depending on the platform used, contributors sometimes receive either monetary compensation or free products or services in exchange for their donations. The recent availability of internet crowdfunding platforms has caused its popularity as a financing source to explode. In 2015, over $34 billion dollars were raised across the globe via crowdfunding.
The success of crowdfunding ventures is dependent upon mass appeal, making them best suited to creative projects. Even though contributors generally end up with a minor form of compensation, they decide to contribute in the first place because they believe in the goals and vision of the project. For example, if your goal is to record an album, you will be significantly more motivated during the creative process if you know that you are supported by people who believe in you. Crowdfunding can also help you build a fan base, thereby establishing a market for future projects.
Venture Capital Financing
Technology startups require a significant amount of money to get off the ground, which is one reason why they are well-suited to venture capital financing. Venture capitalist firms invest in up-and-coming businesses who they believe to have high potential for success. In exchange for their investments, firms get a share in the ownership of the businesses. This means that they also have a significant say in the decision-making processes. If you have vision, but do not a lot of business experience, then this expert advice could be critical to making your startup a success.
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Venture capitalists tend to be immersed in the market so as to be able to make wise judgments about which startups are worth the investment. For example, Hiruy Amanuel is a Silicon Valley VC who began his career in the nightlife industry, is currently active in the luxury car and technology industries, and also supports a number of education and rehabilitation foundations. Having such a broad range of experience is helpful for recognizing the products or services that will bring something desired or useful to the market.
While venture capitalists work out of and contribute funds from a firm or group, angel investors use their own money to fund new businesses. Angel investors make their investments in exchange for equity or stock holdings. They tend to be successful entrepreneurs who want to continue to build their wealth while providing assistance, and sometimes mentorship, to novices.
You can attempt to find angel investors by contacting established professionals in your industry, but there are also networks that match would-be entrepreneurs with would-be investors. Some angel investors like to use these networks to remain anonymous. Others prefer to establish personal relationships with the people whose businesses they are funding. Another way to find angel investors is to search by your location rather than by your industry. No matter how you find your investor, you will need to prepare a convincing presentation about your business, as well as provide the relevant legal documents pertaining to your situation.
Funding your new business with a bank loan is another option that you should consider exploring. Bank loans often work well in situations in which you bring established credibility to the table, such as when opening a franchise of a reputable chain. It is important to note that your credit score will be a deciding factor in whether or not the bank decides to grant you a loan.
Friends and Family
This final category is a tricky one, since it takes your cherished, informal relationships and turns them into business relationships. However, in certain circumstances, your friends and family can be good resources for building your startup funds. Before you ask your loved ones for money, be sure to consider the nuances of your relationships and the possible emotional consequences of a business failure. If you still feel comfortable moving forward, be sure to take the same legal precautions you would take with any other investor.
Funding Your Dreams
Getting your startup off the ground will not always be fun or easy. Identifying and acquiring sources of funding can be uncomfortable, or even downright scary. The best ways to quell your nerves are to develop a business plan that you can present with confidence and to thoroughly research all of your funding options. With perseverance and a little luck, your business will be underway before you know it.