A Startup should be financially backed up through a sound idea. You need to get an idea that can generate funds for sufficient capital. It helps startups to grow further. Lack of sufficient funds may result in failure, especially when it is a startup. Therefore the planning of funding should be based on the futuristic approach. Around 94% of startups shut their shutters within the first year of operation due to insufficient funds required in the early stages.
Funding Options for Startups
There are many ways to raise funds for startups. Some of these funding options are as follows:
1. Crowd Funding
Crowdfunding is the opportunity for new entrepreneurs that helps them to raise hundreds of thousands of dollars of capital. It is money from a large number of people through social media and crowdfunding sites. It is one of the easy accessibility of funds. It can be in the form of debt, rewards equity. The SEC in the United States regulates equity-based crowdfunding ventures. There is a need for understanding restrictions applied by the government in the interest of investors so that they do not have to face a high risk of losing their principal. Investors have hundreds of projects in choice to make investments.
2. Angel Investors
As the name suggests, it is the investment to support and carry the startup through its difficult early stages. Mostly it is the on-time investment from high-net-worth individuals who want a higher rate of returns than traditional investment avenues. They provide financial back up for startups in exchange for ownership equity. These investors can be an entrepreneur’s family and friends also.
3. Accelerators and incubators
These are two different programs. Accelerators’ main focus is on scaling a business and accelerating the growth of an existing business and incubators focus on innovation and providing services in the hope of building out a business model. Most investors with these programs look for tech startups.
Venture Capitalists and Institutional Finance are also other options.
Do’s and Don’ts
- Determine your stage realistically so that you can seek your funding in the right direction.
- Determine your fund requirement for your business needs.
- Focus on the cash flow for business development and growth hacks.
- Have a backup plan
- Don’t give away stocks easily. Avoid advisory shares.
- Don’t go for a too broad audience. Just be limited with interested investors as per your startup industry.
No doubt, raising money is the toughest part for a startup entrepreneur. If they start on the right foot, it will pave toward startup growth. BFAG (Boston Financial Advisory Group) is here to help you in raising funds for your new business model. Connect with us.
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