Ali Hasan
In the last blog we discussed what you need to know before you approach investors for funding and in this blog we will tell you about the stages that an entrepreneur goes through to raise funding. So let’s begin. The 7 seven ways that you can use to raise funding are as follows:-
1. Bootstrapping – If you want funding in order to start your business, then you should never go straight to an investor. Instead you should try to bootstrap your business by using your own money. You should try to use your own savings to start your business.
If this is insufficient, then you can ask for a small loan from your family, friends. Your family and friends won’t decline you if you’re capable and they trust you. When you start your business with your own money, other investors also believe in your business because they know that you’re also putting money where your mouth is.
2. Loan – If friends and family gave you some money but you need more funding after that then you can approach a bank and can avail a loan. This is a good option only when you have regular cash flow into the business as well as healthy profit margins.
But simply having good profit margins won’t enable you to secure the loan. You also need to have a good credit score, strong future trajectory and a solid plan to convince the bank officials to secure the loan. This might not be the best option but it’s certainly better than nothing.
3. Crowd-Funding – If the above 2 options didn’t work out then crowd funding can be a handy option to start your own business. Crowd funding is highly successful when people donate small amounts of money to achieve a common goal.
If the people really like your idea, then you can accumulate the desired amount to start your own business. But it’s not a sure shot way to raise money as it could be a long and tiring process. You would have to work really hard to secure funding through these platforms.
There are various platforms such as Ketto, Milaap and others that you can use.
4. Incubators and Accelerators – Another way of securing funding is to join an incubator or an accelerator program. These programs are basically designed to give support and guidance to small businesses and work with them to make them successful in exchange for equity of your business.
They guide you and offer support through their platform and technology. This is exactly what a small business needs in early days to get itself up and running. They might not be in every city but you can search them on Google and join them to make the most of it.
5. Angel Investors – If you have reached a certain level of success and have secured funding through any of the above discussed methods, then you now need an angel investor. An angel investor is like an angel as he funds a startup when almost no one is ready to fund it.
Most angel investors are semi retired entrepreneurs who know the pain of running a business with very limited or scarce resources. They have already made their money and have secured their wealth through diversification.
Hence, they want to give something back to the community of entrepreneurs and are willing to fund startups which have massive potential but lack funding. If you can find an angel investor, then your chances of securing funding has a high probability.
But remember when you present a pitch in front of an angel investor, be prepared and make sure you have answers to his questions. Otherwise you risk your chance of losing funding as well as the guidance and network that he will bring to your business.
6. VC/Private Equity – If you received funding from an angel investor but now your business has grown to a certain level where you require funding in the range of millions, you need to knock on the doors of Venture Capital or Private Equity firms.
These firms are backed by huge investors and have the responsibility to multiply their investor’s money by at least 10 times. They are well equipped with almost everything and can sense if your startup can be the next big thing or not.
They basically fund when your business has grown to a substantial level and they know that the risk of losing money isn’t very much because your business is growing and will yield profits in the future.
But they will only fund you when you have reached a substantial level and you need a massive funding. They don’t facilitate small amounts of funding and deal in the $10-50 million range. They could be a very good option if you know what you’re doing and are extremely good at it.
7. IPO – This is probably the last stage of securing funding as an entrepreneur. When your business has grown into a full blown private company and your investors have been with you for 7-10 years, then it’s time to file an IPO and make the company public.
This enables your investors to cash out and make exits with good profits while you take your business to a next level as you now become the owner of a public company.
You don’t need to worry about filing an IPO as an entrepreneur as of now because you’re miles away from this stage but knowing this will help you to understand the funding process in a more sophisticated way.
Now you know how to raise Funding
Running a business is never easy and it becomes even harder if you have to run it with limited resources but now you know where you can look for funding. I hope that you can be the next big thing in the entrepreneurial world and the next trillion dollar company is yours.
