Avoiding the Common Pitfalls of Securing Capital: Innovative Financing Options for Today’s Startups

Avoiding the Common Pitfalls of Securing Capital: Innovative Financing Options for Today’s Startups

Avoiding the Common Pitfalls of Securing Capital: Innovative Financing Options for Today’s Startups | DeviceDaily.com

 

For many fledgling entrepreneurs, trying to start up their own business can be an admittedly exhausting and arduous task. Not only are they trying to get their inspired endeavor up and running, but they also are struggling to acquire the much-needed capital to actually successfully fund the startup.

In addition, they’re fiercely competing with every other burgeoning business that is vying for the same funding, compounding the obstacles they face when trying to grow their business.

In the past, securing capital was not unlike fielding an organized racket at the hands of predatory bankers and other similar types of lenders. Oftentimes, it was limited to high-interest bank loans and perhaps the occasional philanthropy of venture capitalists. Combined with the already existing challenges of trying to launch and grow their business in the first place, it can be more than enough to make anyone want to give up before they’re past the starting gate.

Fortunately, the advent of the internet has changed the way startups get their funding, making access to a variety of financial resources easier than ever before. By taking the time to carefully vet each lender, and by being creative in how they approach securing their capital, these unique hardships can be mitigated.

In turn, today’s startups may discover that just as modern industries have changed thanks to this new and innovative technology, so have the means by which they can secure funding.

A Need for Money: The Root of All Startup Problems

Were you to ask any entrepreneur what their most pressing concern was regarding their product or idea, they would most likely unhesitantly reply “money” — or, rather, the complete lack thereof.

We’ve all heard the stories of how an intrepid businessman or woman could simply walk into a bank and ask for a loan, then seemingly somehow become a millionaire overnight. However, while these rags-to-riches stories are undoubtedly inspiring, they leave out several pivotal steps in outlining the narrative of their success.

The fact is, securing capital for a startup is one of the most difficult parts of starting a business. Yes, there are other pressing considerations, too, such as connecting the product itself with a buyer and building a reliable team of workers to help design and create it.

Nevertheless, at the end of the day, one of the biggest things holding entrepreneurs back is their inability to secure the much-needed funding they require to establish and grow their businesses.

These days, though, getting the financing for a startup doesn’t have to be the herculean task it once was. While banks are typically the go-to for many, they are no longer the only option available. Between peer-to-peer lending, crowdfunding, and even so-called “angel investors,” a hungry entrepreneur no longer needs to suffer at the hands of greedy, unscrupulous lenders to finally be able to get funding.

Finding Alternative Means to Acquire Capital

With so many different options to choose from, an entrepreneur is no longer stuck with only a handful of ways to get the necessary capital to fund their startup. Instead, there is a myriad of choices from which they could use, allowing them to be judicious when selecting their source for funding.

Not only does this help facilitate securing the capital, but it also helps safeguard them from exorbitant interest rates or having only a limited amount of resources.

Crowdfunding

One such option an entrepreneur can utilize to secure their funding is via crowdfunding. Originally introduced in 1997 by the British progressive rock band Marillion, this means of acquiring capital has surged in popularity, and for good reason. This route allows startups to raise money from a number of different investors, using platforms like Kickstarter, IndieGoGo, and Crowdfunder.

This is an incredibly flexible option for aspiring entrepreneurs, one that also helps generate consumer interest and establish a digital presence for the startup.

That’s not the only advantage of using crowdsourcing, either. Generally, it also allows potential consumers to get a share of the business — whether through equity or an actual tangible item or product itself — to bolster confidence in the brand.

In many ways, it’s mutually beneficial for both the startup and the investor, minimizing risk while maximizing the opportunity for profits. By pooling your capital, it’s easier to keep tabs on the source of the funding, as well.

Angel Investors

A lesser-known option, angel investors are almost always on the lookout for new startups to invest in. Similar to venture capitalists, these investors are able to offer a wide range of funding to startups.

Unlike venture capitalists, though, angel inventors use their own money to finance a startup. However, this means the amount they can offer is somewhat lower than what a venture capitalist may provide, ranging somewhere between $ 200,000 for individuals and up to $ 350,000 or greater for syndicates.

Like crowdfunding, there are quite a few advantages to turning to an angel investor for your capital, such as the fact that they don’t typically require repayment. Instead, they usually ask for a stake in your business, either through equity or convertible debt. In addition, they can provide the money fairly quickly — provided you’re able to find the right angel for your business. And finally, one clear perk of angel investors is the invaluable professional advice they can provide, allowing you to grow your startup much faster.

Peer-to-Peer (P2P) Funding

Another viable option for entrepreneurs, peer-to-peer (P2P) lending is a means for startups to secure their funding without an unwanted middleman interfering with the process. Recognized as a type of debt-based crowdfunding, P2P funding allows individuals to borrow money from specific lenders through a larger online platform. With P2P funding, you’re able to secure your capital from a team of retail investors who are able to provide you with these requisite resources.

Using P2P funding has its own share of benefits, making it a great option for many. Because it does cut out the broker, you’re typically able to get much lower interest rates on your loan. They’re typically much easier to pay back, too, as the lender often allows payments in convenient monthly installations.

It’s also much faster to get the funding, and most individuals are able to get their online installment loans approved in as little as three days. However, having a strong credit score is frequently a requirement, making getting this resource a barrier to some.

Incubators and Accelerators

While accelerators and incubators are two entirely different things, they often go hand-in-hand in helping startups grow and flourish. When combined together, they’re an indispensable resource to any entrepreneur.

In addition to providing them with the capital they need to succeed, they also can often provide a location for them to work, too. Both can also offer the desired funding, but an incubator is more focused on refining a business idea, whereas an accelerator helps to scale it.

The benefits of using incubators and accelerators are fairly straightforward: not only do they offer seed capital, but they also help encourage the startup’s success.

The amount of capital can vary, ranging from $ 150,000 and up, and they typically require equity in exchange for the funding. However, the mentorship that can come with using an incubator and accelerator often makes this more than worth it. It’s also important to note that they are fairly exclusive, though, often only selecting “blue ocean” ideas with high growth potential.

Small Business Grants

As the old adage goes, nothing in life is free, but grants do come remarkably close. Unlike angel investors (which require equity) or P2P loans (which ultimately do require repayment), these require neither. Instead, it’s a type of funding that comes without repayment strings attached. These grants can be provided from a variety of sources, including both government and private organizations, to help encourage entrepreneurs.

 All you need to do is meet their requirement criteria to qualify, and you can then be awarded a grant to help cover some or all of your startup’s expenses.

That said, despite all of the benefits of securing a grant for your business, they are unquestionably difficult to obtain. First and foremost, they are not intended for your average startup. Instead, they are usually earmarked for businesses that have a philanthropic angle, such as a non-profit or charitable company. T

hey are also often reserved for specific demographics (like women or minorities), or those that give back to a community. And finally, because they are so hard to acquire, many people turn to grant writers to help them get the funding they need.

Finding the Means to Help Your Startup Succeed

Gone are the days of an entrepreneur desperately trying to barter for a nominal sum to help fuel their startup. These days, the very face of capital itself has changed, and conventional resources are also quickly becoming a thing of the past.

Funding for a startup can take on a multitude of forms, ranging from the conventional (such as secured lines of credit) to the unexpected (like using cryptocurrency, for instance). No matter the type of capital, however, all are fundamental resources for the motivated entrepreneur.

From trying to seek out the elusive angel investor to turning to the government for a small business loan, there is no limit as to how a startup can acquire the financing it needs to be a success. Whether they were started out of someone’s garage in Silicon Valley, or they were drawn up on the desks of a Fortune 500 company in New York City, there’s no limit to the abilities of these new companies.

Today, virtually anyone can be the next big rideshare or social media app — just as long as they have the funding they require, of course, and they also know how to get it.

The post Avoiding the Common Pitfalls of Securing Capital: Innovative Financing Options for Today’s Startups appeared first on ReadWrite.

ReadWrite

Brad Anderson

Brad Anderson

Editor In Chief at ReadWrite

Brad is the editor overseeing contributed content at ReadWrite.com. He previously worked as an editor at PayPal and Crunchbase. You can reach him at brad at readwrite.com.

(19)