Financing a Startup Business – Top 5 Methods to Do It

May 13, 2020

The notion of launching your own business and onboarding a group of likeminded individuals who share your passion and dedication to the project is certainly an alluring idea. However, given that startups require financial resources to make an impact on the market and start off on the right foot; many startup ideas stay just that. 

According to Fortunly, 42% of startups fail simply because they produce services which the market doesn’t need, with only 50% of businesses with employees surviving past the first five years of launch. In addition, Forbes reported that over 70% of failed startups did so because of premature scaling, with 42% of innovative startup ideas failing due to long development time which depleted their initial financial resources. 

Launching a startup is a noble effort, one which can facilitate your development unlike any other form of professional engagement. That being said, let’s discuss the ways in which you can finance your startup efficiently, as well as how you should handle your team roster in order to remain both effective and conservative with your financial resources at launch.

Why Launch a Startup Business in the First Place?

Let’s briefly touch on the “why” behind the notion of launching a startup of your own before diving into financial options available at your fingertips. The reasoning behind launching a startup varies drastically depending on your personal and professional development so far. 

Samantha Nicole, Head of Business Development at Studicus had this to say on the topic: “Getting to a point in your life where you are ready to jump into the role of a startup CEO should absolutely be taken advantage of. Whether you want to iterate on an existing technology or revolutionize the market with unique services, if you don’t give your idea a shot, no one else will do it for you.”

According to Small Biz Trends, some of the reasons to do so include being ready to be your own boss (26%), wanting to pursue a particular passion (23%), as well as gaining an opportunity to build your own image and personality in a certain industry (19%). While monetary resources certainly are an issue we all have to face sooner or later, raising funds for a startup idea you truly believe in will undoubtedly convert others, both B2C and B2B, to back you up along the way.

Hiring Freelancers vs. Hiring Employees

An important point of contention in terms of maintaining financial stability in your startup’s first year lies in its scaling. Specifically, striking a good balance between devoting resources to project development and hiring the right people to assist you can make or break your funds quite quickly. That being the case, hiring freelancers rather than full-time employees might be a great way to go easy on your resources while also getting things done in an efficient manner. Some of the most tangible benefits of hiring freelancers in this manner include:

●      Cost-effective professional assistance

●      Remote work collaboration

●      Full control over your IP ownership

●      Ability to make your work environment fully agile

It goes without saying that hiring vetted freelancers is the way to go in this case, given that your startup’s future will rest in the hands of contractors you onboard for early development. Freelancers that prove resourceful and click with your expectations can be retained full-time and turned into permanent employees over time, however, such commitments should generally be avoided with limited startup funding in the early days.

Financing a Startup Business

  1. Bootstrapping a Startup

Let’s start off by introducing a convenient and approachable way of financing your startup through bootstrapping. As the name might suggest, bootstrapping revolves around launching your own business with very little or no outside capital to speak of. This startup financing method can be efficient if you have a nest egg, a pension or some other form of passive income which is reliable and directed directly at your person. 

As we’ve previously mentioned, hiring freelancers as required and scaling back on your outside assistance whenever necessary is a viable tactic in a bootstrapped startup environment. Writing tools such as Best Essay Education and Evernote can be used to outline your financial situation and write up a simple startup plan which you will then gauge against your savings to determine the best course of action. While it will certainly limit your scaling possibilities during the first year, bootstrapping a startup is a great way to be certain that your business is your own, having no obligations to any outside party in doing so.

  1. Crowdfunding Platforms

If you have a pretty good idea of where your startup project will go in the next year or two, you can opt for crowdfunding platforms as a go-to means for raising financial aid. Crowdfunding platforms such as PatreonKickstarter and Go Fund Me have become established hubs for all things startup-related. While you will have to prepare an extensive presentation of your startup’s idea, road map, as well as deliverables and a possible online demo to boot, crowdfunding remains one of the easiest ways to amass global support. 

Tools such as ReadableTrust My Paper and Canva can be of assistance to you during the presentation creation phase of your crowdfunding campaign in terms of writing and formatting. You will also have an obligation to the supporters of your startup since you will effectively receive their collective financial aid as a tool to deliver the presented ideas and products/services to the market after some time. Keep in mind however that crowdfunding campaigns fail as often as they succeed, you should still explore other avenues of financing just the same.

  1. Peer-2-Peer Loans

Loans which originate from your social circle might be a great way to raise financial resources for your startup idea in a relatively short period. Your friends, acquaintances or even family members might have access to saved funds which they might be interested in investing. As such, your needs will perfectly align and you will have gained access to much-needed financial aid from a person whom you are familiar with and can come to a mutually-agreeable deal more easily. 

However, keep in mind that in the case of startup failure the person in question will still ask for a return on their investment in some capacity, just like a financial institution would. In addition, it can be difficult to explain how long-term investment and returns work to a friend or family member unfamiliar with running a business or startup development. Make sure to have a written contract in place as a guarantee of validity and trust in peer-2-peer loans and the prospect of financing your startup through this method will go down fairly well.

  1. Financial Institution Aid

If you wish to raise startup funds through official means, you can always turn to a local institution such as a bank or a startup development agency. Banks across the globe offer financial aid for new businesses with different clauses and interests which will unavoidably bind you to their contracts until you fulfill the set requirements. 

This type of financial aid, while straightforward and easy to obtain, can be dangerous for you in case of startup failure (which is an inevitable option on the table). Make sure to sit down with your lawyer or a startup development agency representative and write down your plans and requirements via tools such as Grab My Essay or Hemingway Editor prior to going to a bank. Banks can be unforgiving if it comes to poor financial resource management on your part since they will ask for returns in one way or another, leading to potential problems for your personal livelihood’s stability. 

  1. Angel Investors

Lastly, opting to search for angel investors for your startup development can be an extremely efficient way to ensure the necessary financial aid. Angel investors are typically ex-CEOs and retired individuals with very large sums of nest capital who constantly search for new startups and business ventures to invest in. Depending on your startup idea’s originality, monetization opportunities and long-term development plans, angel investors will happily jump at the opportunity to invest in your business. 

It’s worth noting that opting for such an investment path for your business will inevitably lead to your obligation toward the investor for obvious reasons. This can lead to a future struggle with IP ownership, startup stock trade and other financial troubles if the initial contract leans in favor of the angel investor too heavily. Make sure to review and explore every part of the contract related to the angel investment, no matter how good it looks at first glance, and the fundraising method will work in your favor more often than not.

Light at the End of the Tunnel (Conclusion)

Startup ideas, no matter how original or groundbreaking they might seem at first, will always be as successful as your passion toward them. If you don’t believe in what you’re selling to the investors, banks or crowdfunding platforms, no backer will risk their resources and invest in a half-baked effort. 

There are always resources to be found and raised for startup ideas which are backed by individuals who believe in their projects. Make an earnest attempt to finance your startup, gather a group of people you can trust with the work at hand and deliver on your initial promises with smart work and dedication.

Bio: Nicole Garrison is a professional Content Creator and Editor at WoWGrade and Supreme Dissertations writing services. Her career goals are centered on developing informative and practical content for online audiences in a variety of industries.