Starting a business is tough, funding that business can be even tougher. Here's everything you need to know to get startup funding for your venture.
Sure, you might have a business idea poised to make you the next Sara Blakely, Whitney Wolfe Herd, Bill Gates, or Jeff Bezos, but an idea on its own isn’t enough to make your startup a successful one. You’ll need startup capital to get your new venture off the ground too.
But… where will that money come from?
The tech industry has glamorized the idea of raising funds through venture capital, angel investors, and startup incubators, but there are many (more accessible) funding options out there too.
Regardless of the path you choose, though, you’ll need all the help you can get. So with that said, let’s take a look at what you’ll need to get funding for your business, plus 7 ways to get the money you need.
Table of Contents
3 Steps to Get Funding for Startups
1. Create a Business Plan
Your business plan doesn’t just lay out your plans and strategies for your new venture. Investors, bankers, and lenders will also review this document to validate your idea and decide whether to give you the startup funding you need — which means it’s crucial to get this right.
So, make sure to include details like:
- Market research
- Annual revenue
- Spending costs
- Funding needs
- Financial projections for the next five years
You’ll need them to prove to potential investors why they should bet on your business. Of course, a business plan can also help you determine just how much money you’ll need to raise for your startup.
Don’t just take into account the amount needed to create your product or your business — consider other necessary expenses like marketing, business licensing and registration fees, payroll, and more.
2. Decide How You’ll Raise Money for Your Startup
Now that you know how much startup funding you’ll need, next you’ll want to figure out where you’ll be getting the money from. The exact combination of fundraising methods will differ from business to business, as you’ll be basing it on your startup’s exact needs and goals.
For example, maybe you need a significant amount of startup funding but aren’t willing to give up ownership in your company to get it. In that case, you’ll want to avoid pitching investors and perhaps focus on business loans, lines of credit, and grants instead.
Or, maybe you realize that you don’t actually need a lot of money to get started, so you decide to fund the venture with your personal savings instead.
Whichever route you choose, make sure to do your research beforehand. And if you decide to borrow money, draw up a repayment plan and factor that into your business plan as well.
3. Gather What You Need to Execute Your Fundraising Plan
Once you’ve decided how you’ll be raising capital for your new venture, now’s the time to gather the information and legal documents you’ll need to do it successfully.
If you plan on applying for business loans or grants, for instance, you’ll want to review the application resources for each organization to learn what they’ll require from you. If you’re going the investor route, spend extra time building a strong business plan, pitch, and pitch deck.
“A rock-solid pitch and pitch deck will help you get the funding you’re asking for,” says Colin Toh, CEO and Founder of Headphonesty. “Make sure that you practice your pitch ahead of time so that you can deliver it with 100% confidence. Think about questions that investors might ask and prepare answers ahead of time so that you’re ready to respond to questions confidently as you deliver the pitch presentation.”
Expert Computer Solutions CEO and Founder Peter Robert emphasizes that it’s important for aspiring entrepreneurs to put themselves in their audience’s shoes to understand what their baseline knowledge of your industry is. Then, build the company’s pitch or messaging around that.
“In the tech industry, fundraising can be difficult because the average consumer or investor might not have a huge understanding of the industry. This is why it is so important to present your business in the most accessible way possible. You need to ensure that even consumers with the least tech knowledge possible can still understand the benefit of your company.”
7 Ways to Raise Funds for Your New Business
1. Appeal to Investors for Venture Capital
Venture capitalists (VCs) and venture capital firms can endow your business with the funds, strategy, connections, and resources needed for exponential growth — if you know where to look and how to appeal to them.
The vast majority of VC firms look for high-growth companies, often in the tech sector, with a proven track record of success. And in exchange for their funds and industry expertise, they’ll expect you to give up partial ownership of your business, or at the very least, a seat on your startup’s board of directors.
Still, this is a trade that many entrepreneurs seeking funding from venture capitalists and venture capital firms are willing to make. As a result, the tough competition can make it very difficult for new business owners to successfully connect with professional investors.
For best results, seek funding from a venture capital firm that actively invests in startup businesses that share the same industry, mission, or values as you. Startups focusing on green energy and “cleantech” will want to focus on firms like Energy Foundry or Energy Impact Partners, for example, while those in the games industry can look to ones like Griffin Gaming Partners or Galaxy Interactive.
2. Enter Pitch or Business Plan Competitions
These competitions typically ask you to pitch your business idea or submit a business plan, then judge you on the result. In addition to receiving cash prizes (startup funding) and resources for their venture, winners of these competitions often draw media attention to their startup as well.
Although you’ll find that many of them tend to focus on buzzy tech business ideas, there’s some good news for non-tech startups looking to join these contests. Competitions like Red Bull Basement don’t shy away from socially-minded entrepreneurs.
Park & Diamond, which manufactures foldable bike helmets, took home top honors at the event — back in May 2017, when the event was still called Red Bull Launchpad — when they were still in the prototype phase. As a result, the company was then able to showcase the collapsible helmet to a much larger audience at the TechCrunch Disrupt conference in New York.
If this is something you’re interested in pursuing, don’t confine yourself to just the big-name competitions out there. Oftentimes your local Small Business Administration (SBA) office or Chamber of Commerce will host smaller versions of these events for local businesses, meaning there will be less competition there too.
3. Join a Startup Incubator or Accelerator
Startup incubators and accelerators are organizations created to help small businesses and their founders execute their ideas and take them to the next level.
Incubators and accelerators serve businesses and startups at different stages of growth:
- Incubators work with new founders and startups with great ideas, but perhaps don’t have a business model or plan yet and still need to connect those dots.
- Accelerators focus on businesses that already have an idea and business model in place, but need help connecting with investors, partners, or resources to continue growing.
In both cases, startups that work with these organizations can expect to receive access to resources, connections, and mentorship opportunities they wouldn’t have otherwise.
4. Run a Crowdfunding Campaign (or Two)
Like the name implies, crowdfunding websites like Kickstarter and Indiegogo allow businesses to raise capital from a large number of people at a time. These people, called crowdfunders, donate money to your campaign, often with the expectation of some sort of gift in return.
You can offer discounts on your product or service, or even the finished product or service itself. Feel free to get creative with these perks too — some companies have offered opportunities to meet the business owner in person, or list on their website the names of donors who have put down significant amounts of money toward the campaign.
On the other hand, equity crowdfunding platforms such as SeedInvest and StartEngine give startups the opportunity to crowdfund an investment round instead. The people drawn to the campaigns are often the same people who would buy the product, making crowdfunded investors an important resource for customer insights too.
If equity crowdfunding is something you’re interested in pursuing, read up on securities laws — and perhaps hire a securities attorney — beforehand to make sure your campaigns are compliant with federal laws.
5. Take Out a Business Loan or Credit Card
You can also turn to more conventional business financing methods, such as bank loans or credit cards.
A traditional business loan can be difficult to get as a startup, but the SBA offers microloans and other loan programs specifically designed for new businesses. Since lenders typically see new businesses as a bigger risk than their established counterparts, the SBA steps in and guarantees SBA-backed loans through certain lenders so that these banks are more willing to offer loans to new borrowers.
If you have a good credit history, you can also look into applying for a business credit card if you’re interested in the additional benefits that some issuers provide. You heard that right — credit cards are okay to use, especially if you have a plan on how to use them and a plan to pay off the debt.
“Don’t be afraid to use business cards to help fund your business,” says Robert. “This can give you a bit of a head start, but still asks you to control spending, so you don’t drown in interest payments. Using credit cards as a form of funding should not be your only means of financial support, but can certainly help when times are hard.”
6. Apply for Small Business Grants
You can also tap into grants specifically created for small businesses, especially if your startup does important work in fields like medicine, education, and social welfare.
Since most of these grants come with little to no strings attached, the application process is a lengthy one and the competition is fierce. But if you are awarded one, it’s basically free startup funding— no need to give out equity or pay interest on the funds you receive.
Some cities will offer grants to get small businesses (and accordingly, jobs, and consumers) to relocate to their area for a certain length of time. If you’re a female founder or a member of an underserved community, chances are there are grants available just for you too.
For an extensive list of federal business grants, visit this grant directory to search through over 2,000 different grant programs.
7. Bootstrap Your Business
Most startup founders will find themselves self-funding the business at some point in their company’s life cycle, or at least in the very early stages of the venture.
And it’s easy to see the advantages of doing so: This route allows you to keep full ownership of your company and reinvest the money you’d otherwise spend on loan or credit card interest fees. On the other hand, if the business fails, you’d lose all of the personal funds you put into the business.
Even if you plan on pursuing other financing methods in the future, it’s important to dedicate some of your personal resources or assets to your startup.
If you apply for SBA loans, they’ll check to make sure you’ve exhausted all other avenues first. Plus, investors will want to know you have some skin in the game before they invest in your venture. After all, if you aren’t willing to invest in your own company’s success, why should they?
Rokas Medonis, CEO of carVertical, adds his two cents on the matter:
“Very, very many great ideas and products that could become successful businesses are rejected by Venture Capitalists because the founders come to ask for investment too early. Find out what the MVP (minimum viable product) of your product is and try your best to build that on your own. If possible, fund this period with your own money.”
He continues, “The MVP does not have to be perfect. By taking an active path to the MVP, you will discover more than one mistake and illogicality in your idea, and you will pivot your product or business idea in the right direction.”
Bootstrapping forces you to be creative and strategic with your business funds and offerings. So, when you are ready to seek out other funding sources, you’ll have a stronger company and product to show for it.
You’re In Control of Your Startup Business Funding
As you can see, there really are no shortcuts when it comes to startup funding for your business venture. Even the opportunities that promise “free money” come with significant effort and preparation on your part.
Angel investors, seed funding, venture capitalists…it can all be a bit much to digest, but startup funding, even small investments, can really help cash flow and get your startup business off the ground.
The road to success as a startup founder may be a long one, but if you’re willing to roll up your sleeves and get to work, it’ll be a rewarding one too.