So you want to launch a startup? You have the idea, and the passion and you’re ready. But what about funding? When you’re just starting out there are five types of startup funding to explore as you build your business.
5 TYPES OF STARTUP FUNDING
Most founders and startups start with self-funding using personal money they have in savings or extra they earn above and beyond their monthly expenses. Using your money wisely is important with this route, it can pay off in the long run, but involves more personal risk.
We’ve all heard of Kickstarter right? That’s crowdfunding! You can create your own campaign using a platform like Kickstarter, or even ask friends and family to invest money. Crowdfunding is also a great way to gauge interest in a physical product, and allows you to have a sense of whether or not to move forward with larger runs of production.
Angel Investors are individuals who come forward and invest either small or large amounts early in your business. In exchange for this investment they usually require some sort of equity with the expectation that they will receive a high return on the investment in the future.
Venture Capitalists can be a firm, or an individual who create personal wealth portfolios out of various investments, including different types of businesses. Similar to Angel Investors, VC’s give you money in exchange for equity in your business. Working with a venture capitalist requires a higher degree of professionalism. You go pitch your business and if they like it they invest and add you to their portfolio. Another bonus to working with VC’s? They are generally well connected and can help you get meetings with other investors to gain even more funding.
Incubators and Accelerators
Incubators and Accelerators are groups or cohorts that you can join, usually led and organized by a group of mentors or potential shareholders. These groups are a great way to make connections, test a product, gain knowledge and mentorships, and build momentum. Incubators (and sometimes Accelerators) include access to funding opportunities to propel your business or startup forward.
As a business owner or startup founder you can expect to participate in some or all of these types of funding to some degree. There is no right or wrong way specifically, but there is a strategy behind choosing funding routes.
SO, WHICH TYPE IS THE BEST FOR YOU?
That question relies on your marketing strategy. To which degree, from both the financial to organizational, do you want to partake in pitch rounds, outside ownership/equity, or personal loan support?
The answer isn’t always straightforward.
In fact, seven out of the ten startups I’ve worked with in the past two years have done a mix of all funding avenues. From self-funded to formal pitches, there is no right way. Each startup has their own path to prosperity.