Do you have a great idea for a startup? Do you think a particular business needs to be opened in your neighbourhood? Do you consider a new online venture to be a gamechanger in your industry?
Whatever it is all about, now is the best opportunity to embark upon your entrepreneurial dreams, particularly from a financial point of view. Money has never been this cheap, and creditors are looking just to give their money away. Even if the idea of using credit to launch a business does not sound appealing, you should look at the many different ways of borrowing cash. You would be surprised to see how credit markets have evolved and adapted to the changing landscape.
There has been a dramatic increase in the number of people becoming entrepreneurs, particularly among tech companies in Canada and North America. Whether it is because of frustrations over the conventional world of work or because they have incredible ideas, the entrepreneurial spirit is being tapped by many smart and skilled folks all over the world. Like everything else in life, your goals need some seed money to help you get started. Before you know it, you’re talking about series financing and working with VC firms on Wall Street.
Here are the eight different types of funding for startups:
Type #1: Bank Loan Funding
In today’s economy, financial institutions are encouraged to lend more to their clients. With historically low interest rates, the federal government’s fiscal easing, and accommodative monetary policy by the Bank of Canada (BoC), banks have no reason to deny anybody a loan. In other words, if you are an entrepreneur or the owner of a startup, then now is the best time to borrow from the bank.
Everything from low interest rates to beneficial terms, the credit market is in your favour.
Type #2: Series Funding
Series funding is another popular type of funding for startups. It’s a good way to generate capital for your company from professional investors in order to grow your startup.
It begins with pre-seed funding, which is usually capital that comes from the owner, supporters, friends, and family members. This money is used to get the operations started.
The next part is seed funding, the first official equity funding stage.
Now come the series funding categories:
- Series A: The first round of financing that a startup is given from a venture capital company in the range of $2 million to $15 million.
- Series B: The second round of fundraising that generates an average of $32 million and is used to take the business to the next step.
- Series C: The third round of fundraising that scales the business and growing it as quickly as possible. The money could also be utilised to purchase another firm. The dollar-figure is anything in the $50 million ballpark.
Type #3: Crowdfunding
Why not directly ask consumers for a cash infusion? Well, that is what crowdfunding is for in this day and age!
Crowdfunding has been an essential source for a lot of young entrepreneurs who have unsuccessfully tried the conventional route. All you need to do is establish a funding goal and offer something to donors, such as a free product or 10% off for an entire year. It may sound easy, but because there is so much competition on these platforms, it can be not so easy to get noticed.
That said, here are some of the top platforms for startups:
- Go Fund Me
For these types of funding, you might also need to pay a percentage of your earnings to the organisation.
Type #4: Angel Investors
An angel investor is someone with a lot of money which provides your startup with capital. This person is then given ownership equity or convertible debt.
Angel investors, who are usually on their own, are the ones who are willing to back business startups in the early days when most other investors are unwilling to offer financial support. Hence why they are referred to as angel investors.
Type #5: Venture Capitalist (VC)
Venture capitalists are integral to tapping high-growth potential in startups. A venture capital (VC) firm is a private equity investor that offers capital in exchange for an equity stake in the firm. We are talking millions of dollars, and VCs are willing to provide this amount of money because their return on the investment is usually massive if they bet on the right horse.
VCs also participate in the series fundraising rounds (see above).
Type #6: P2P Lending
The internet has made it easier to borrow and to lend without a middleman. Over the years, there has been a substantial increase in the number of platforms that allow amateur lenders in one part of the globe to extend credit to borrowers on the other side.
Known as peer-to-peer (P2P) lending, it is remarkable to see the industry’s growth. These types of funding would be best if you rarely worried about fraud or theft because these websites have many safety mechanisms installed into the digital infrastructure to facilitate a safe and secure transaction between borrowers and lenders.
Unsure of any websites? Here are only a few to take a gander at:
- Go Peer
Type #7: Business Incubators
Business incubators are all the rage in some of the world’s biggest cities. A business incubator is a program that works with early-stage startups to access a wide variety of resources, mentorship programs, investors, and other support features to aid in the development of these entrepreneurial ventures.
Once you have advanced beyond the incubator stage, you are then upgraded to a business accelerator.
Type #8: Personal Investment
Finally, you can always tap your savings and investments to fund your business. Some say this will help you pinch every penny and be more responsible with how you spend your dollars and cents. Others note that it is unnecessary because of how cheap money is in this environment. Ultimately, using your capital could have its advantages.
Just a word of caution: It may be a good idea to refrain from touching your retirement savings. But if you have mutual funds for short- to medium-term goals, then these could be used to fund your startup.