A lucrative idea can be a profitable startup, but like any business, it demands many resources including money.
Usually, startups approach venture capital firms that can fund their projects while getting something in exchange. It could be a seat on the board or a significant percentage of the profit for years.
For some, this arrangement can be problematic since it could limit their business control or reduce their cash flow. If this isn’t the route you want, you can consider other ways to generate capital:
1. Bootstrap
Bootstrapping is the process of funding a business without relying on loans or credit. Many lenders often charge high-interest rates for new companies because of their lack of credit history and proof of sustainability. It could then impact your future cash flow.
To bootstrap, usually, you use personal savings and income. You can also reach out to friends and family who can provide zero-interest loans or volunteer services during the first few months of the startup.
Once you begin earning, you don’t declare wages right away but instead add profit back to increase working capital.
While this method lowers liability, it’s not the long-term strategy. You’re likely to have limited savings. If your idea catches on with your targeted market and the demand increases, your working capital might not be enough to meet the needs.
2. Run a Crowdfunding Campaign
Oculus made headlines in 2014 when Facebook bought it for a whopping $2 billion, making it about a billion-dollar costlier than Instagram.
But before this deal, the video game developer who became popular for manufacturing virtual-reality headsets received help from crowdfunding. It asked for $250,000 funding from Kickstarter but eventually raised close to $2.5 million.
Crowdfunding sites are platforms where individuals and businesses can request for financial support from other users, otherwise known as backers. Depending on the site, startups might have to provide incentives or rewards equal to the contribution.
This setup is beneficial for fledgling businesses in many ways. One, they can already test their idea, and two, they can already build a market. They might even begin selling their products.
However, many startups often forget that these platforms usually charge fees. Meanwhile, sites like GoFundMe can ask for tips, but they can be as high as 20%. Consider exploring other alternatives, such as Free Funder, whose tip percentage is up to 9%.
3. Seek an Angel Investor
In general, an angel investor is a high-worth individual who provides seed money in exchange for equity shares. Some of them are also accredited investors under the Securities and Exchange Commission (SEC).
It means they have assets amounting to at least a million dollars or earned not less than $200,000 for the past two years. If they’re a married couple, their total wages within the same period should have reached $300,000.
Although these individuals get a share in the business, they often don’t participate in decision-making or take any other active role in the operations. This is because the investment is only a small percentage of their overall portfolio.
Building a startup isn’t easy, but it becomes more challenging when you have limited financial resources. Knowing where to get it, besides venture capitalists, will help you make sound decisions and better business control.
