Building your startup not only requires time and skills, you also need to have capital. Of course, this depends on the type of the business that you are starting. Service-based businesses usually do not require a big investment. On the other hand, startups building or producing a physical product might need a huge amount to reach their goals.
Many questions pop up in the mind of the entrepreneur when it comes to getting an investment. In the next three articles I will try to answer some of them. In this article the question “What is the best funding type for our company?” will be answered.
There are a couple of different funding options entrepreneurs can choose from.
The idea behind crowdfunding is to fund a project or idea by raising money from a large number of people. This is a unique opportunity to sell your idea directly to the consuming public and test the market. Crowdfunding might not be the best solution for companies that offer business-to-business solutions though.
Angel investors are individuals who invest their personal capital in exchange for equity in that company. They invest small amounts in startups that are still at the seed stage. It is important for the entrepreneurs to approach the right investor, who will not only invest money, but mentor and share their networks as well.
Venture capital (VC) funds invest in companies in exchange for equity in the companies they invest in. This type of investment usually occurs after a seed funding round. Their interest is to generate a return through an eventual exit event, such as an IPO or trade sale of the company. Venture capitalists usually invest bigger amounts than the angel investors.
And don’t forget there are other sources of funding, like applying for a business loan from a bank or getting help from family and friends. In some countries, there are government-owned investment organisations that can support startups by offering different types of grants.
The main step before you look for investment is to consider if you really need investment. Many companies use bootstrapping because sometimes the best funding option is not to seek investment at all, but to focus on execution and build traction without outside interference.