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Startup finance – Ways to raise money or capital for your startup

startup funding methods
startup funding methods

Every startup founder has a dream to make his/ her startup a Unicorn. Unicorns are companies valued at over $1 billion. It not very easy to get to a valuation of a billion dollars without any funding. Most of the startups fail in the first 3 years of business due to multiple reasons and lack of funding is one of the major reasons. 

Someone who is looking to start a startup and wants to know the ways and means to raise money then you have come to the right article. I have listed down the ways you can raise money for your startup.

Startup Finance through Self-funding 

Self-funding is when you have some money saved from your previous job and invest it to fund your startup is called self-funding. Self-funding is perfect for someone who is looking to own 100 percent of his business. 

Most of the startups are self-funded on the initially and later move to investors.

Pro’s of Self Funding

  • You don’t have to be accountable to the investors and financial institutions
  • Gain 100% of your profits

Con’s of Self Funding

  • Additional funding should be bared by the individual.
  • All the Losses for the startup would be bared by the individual 

Startup Finance through 3F’s (Friends, Family, and Fools) 

Friends

If you already are having a startup and looking to raise some capital and have friends who would invest in your idea then you are good to go. You can either take the investment in the form of a loan in which you would have to pay intrest on the principal amount. The second alternative is to give your friend some stake or equity in the startup.

Family 

Getting startup finance by a family member is one of the most common forms of funding a startup or business. You would need to pitch your idea or business to your relative and may have to try many times before getting an investment.

Fools

Don’t be worried by the word fools. Fools in my term are someone who is not a professional investor and can be found in conferences, meeting and trade shows. Fools are the ones who fall in love with your startup and also would want to invest in it.

Startup Finance through Angel investors

Angel Investors is someone who has good financial backing and invests in startups and businesses in a very early stage. Angel investor is very active in the startup funding industry and can help would also secure additional funding. Angel investors have their own community and its very easy to get hold of them.

An angel investor would most of the times take equity into the startup and to grow his/her investment would connect the startup with venture capital firms.

Pro’s

  • Angel investors not only provide you financial backing but also help you with finding the right team and future investors.
  • Startup Finance for the future rounds of funding could be very easy if you have the right investor.

Con’s

  • Choosing the right investor in the early stage is very essential for the growth of the company.

Startup Finance through Venture capital

Venture capital mostly invests in the seed stage of a startup. They are professional investment firms whose core business is to invest in startups. Most venture capital firms raise their money from other financial institutions and provide them a return on investment. Startups looking to raise money in millions go to venture capital firms to get an investment and take an equity stake in the company. 

Pro’s

  • Venture capital firms have big spending power and investments can range from $1 million to hundreds of millions.
  • Venture capital firm helps the company to grow at a very fast scale.

Con’s

  • Choosing the right investors can be a very tedious process for the startup.

Startup Finance through Banks and financial institution

For hundreds of years, banks have been investing in companies and businesses. If you’re looking to raise money with a load then banks are the perfect place for you to secure your finances. Some banks also invest in a startup but it is not very easy to get funding if you are a small company.  

Pro’s

  • If you take a loan from a bank you would not be able to give up any share in your startup.
  • Banks can provide loans in very large quantities.

Con’s

  • Getting a loan from a bank is a very tedious and stressful process. 
  • Most of the banks do not take equity or invest in a startup.

Startup Finance through Crowdfunding

Crowdfunding in simple terms is when many people invest in a product, entrepreneur or startup. The person pitches his/her idea and as people from around the world to invest. In Crowdfunding the size of the investment an individual is usually very small but the overall size of the investment if quite large. The entrepreneur showcases his/her investment and gains investment from multiple people.

Startup Finance through IPO (Initial Public Offering)

IPO’s is when the company sells its share to public investors and the company’s stock is listed on a stock exchange. A company that has reached a scale and looking for investment in a large sum would raise money with the help of an IPO. A company sells its share to an investor at a price set by the company with the help of an underwriter.

Startup Finance through ICO (Initial Coin Offering)

Initial coin offering has been the latest trend among companies involved in the cryptocurrency and blockchain space. When a startup requires funding it launches an initial coin offering and investors invest in bitcoin or other forms of cryptocurrency. The company sells its own coins or tokens as shares in its company. The token holder makes his money when he sells the coins in a cryptocurrency exchange to investors.

About the author

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Joel Picardo

Joel Picardo has been in the startup space for the last 5 years and has worked with startups in the cryptocurrency and digital marketing industry. He founded GeekyMint along with his co-founder SafdarAli with a mission to provide well-reseached articles in the cryptocurrency, finance, technology, blockchain, software, and startup sector

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