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| Equity Funding for Startups

Getting a Startup Funded In Six Easy Steps

Want to Learn How to Get Your Startup Funded?

Want to Learn How to Get Your Startup Funded? Then read no further than this article. Here we will go over a checklist of items to give you the best chance of receiving funding for your big idea!

Step 1. Borrowing Money From Family and Friends

Starting up a business is both scary and exciting, and your friends and family know this.
Your friends and family will be easier to convince to invest in your company rather than actual banks for investors. Those who know you and support your dream. Although they are your friends and family, you should always get legal advice before making financial decisions. Be cautious when choosing this route as using money from those close to you can be tricky if things don’t pan out like planned.

Step 2. Apply For a Small Business Loan or Grant

Another way that small businesses can fund their startups is by applying for small business loans or grants through banks, although this can be a challenging way as banks are extremely cautious about who can qualify for a loan. Alternative lending companies are available who may be more capable of helping small businesses get started but they may trick you into signing into contracts that you do not want. It’s important to understand what you are signing up for when using alternative companies, as some of them can be eager to scam you for money.

Grants for small businesses are determined based on a selection process through categories. These grants are typically dispersed through Chambers of Commerce centers or local chapters, but it’s important to read carefully about where these grants are coming from as some may require you to pay it back or agree to certain conditions later on about your business. Knowing what you are agreeing to before accepting funding is crucial, this processes should take time as if rushed can lead to bad financial decisions

Step 3. Using Your Own Saved Funds

A common way that most small business startups try and get their brand going is by providing through their own savings funds. By doing this they no longer need to rely on family and friends or get into legal deals with banks and third party providers. This can also involve credit cards with low interest or using lines of credit on your home. This is a risky investment because small business owners will need to make sure that their credit score can handle the financial strain that is bound to happen. Making sure that you are prepared for the struggle of keeping both your business and yourself afloat is pivotal to succeeding, otherwise if the startup does not prosper, debt will loom over you.

 Pros of using your own funds:

 

Cons of using your own funds:

 

Step 4. Crowdfunding

Crowdfunding is most often done online instead of networking in person. There are many sites that allow startups to sign up and get supporters. When crowdfunding, it’s important to use social media to help your campaign grow. There are two types of crowdfunding, donation fundraising and investment crowdfunding.  

There are both advantages and disadvantages to crowdfunding. 

The pros of crowdfunding:

 

The cons of crowdfunding:

 

The top 5 crowdfunding sites:

  1. Kickstarter
  2. Indiegogo
  3. Causes
  4. Patreon
  5. GoFundMe

 

Step 5. Contests

Applying for business plan contests have their ups and downs. Mini shark tanks mimic the look and feel of the real thing. They can be great ways to connect your product or service to your target market and the community. Finding local contests can be challenging but finding your nearest US Small Business Administration can help startups get a decent timeline for future events. 

Pros of local contests:

 

Cons of local contests: 

 

Step 6. Accelerator Business Programs

These businesses are relatively new and have began to grow steadily across the country. A startup might choose one of these because it can help them grow while also learning the ropes of the market. Young entrepreneurs are able to start their company while also making connections, but even though it’s a great opportunity, understanding the technicalities that go along with these accelerator businesses are important.

Pros of using an accelerator business:

 

Cons of using accelerator business:

 

Regardless of what a startup chooses to use, there are many options out there to get you funded. Think critically about the risks involved in each funding option and choose the best fit for you and your company.

 

How to Choose the Right Crowdfunding Investment

Choosing the right crowdfunding company to invest in can seem like an overwhelming task. With this article hopefully, we can clear the air for investors who may be on the fence about what company or industry to invest in.

What is Crowdfunding? 

Crowdfunding drawing

Crowdfunding is when startups or businesses want to raise money for a project or cause. These crowdfunding sites are helpful because it allows those small businesses and startups to generate investors and people who wish to donate their own money, for a relatively small price and a short amount of time. 

Crowdfunding is usually done online instead of networking in person. This means that the use of social media makes it both easier and harder for projects to earn money. It can be tough because there are so many brands trying to start up but not enough supporters for everyone. 

The Two Types of Crowdfunding

 

Investing into a company can be a smart choice for those looking to support businesses that they believe will grow exponentially. Looking into investment minimums is the first start to beginning a manageable deal structure.  Crowdfunding sites are popular nontraditional startup options for brands that are in the early stages of setting up. It is a compelling platform for both sides of the coin. 

Risks Associated with Investment Crowdfunding 

Risk management flow chart

There are great risks that come with any investment. It’s good to know what they are and decide if the pros and cons of investing are right for you. Knowing all possible outcomes helps you make an informed decision with your money. 

Fraud and Scams 

One of the most common tactics that scammers use is that they pretend to be a crowdfunding business. Since crowdfunding sites reach a variety of people, not everyone will have your best interest in mind when it comes to investing your money. Fraud on social media runs rampant because it’s easy to attract equity investors who are just starting out. They trick first timers who skip or forget about investigating, auditing or reviewing the facts based around the startup. 

Always make sure to practice due diligence before investing to avoid fraudulent crowdfunding projects.

Beware of Hackers and Cyber-Criminals 

Crowding funding sites are great places for both startups and investors to use but don’t let your guard down when it comes to your internet security. Hackers are rising at a rate that is worrying. 

Hackers Statistics:

 

This can be a huge problem on crowdfunding sites if hackers start to target vulnerable investors. This means that when practicing due diligence, don’t stop at just the company, but also examine the funding platform carefully. 

Five crowdfunding sites that are worth taking a look at:

  1. Indiegogo
  2. Wefunder
  3. Startengine
  4. Republic
  5. Netcapital

 

The Risk of Failure is Always Near 

Venture Capital

When startup businesses are funded through this equity crowdfunding, there runs a greater risk for failure upon their launch into the market. Venture capital is a less risky investment because it usually provides companies with seasoned professionals to assist them through challenges they may face in the beginning stages of their startup. A business plan and support structure must be done properly in order for them to have the opportunity to succeed as funding is just the tip of the iceberg. 

It Takes Time 

Investing in new startups is exciting but it takes time to actually see major results. When investing, most expect some return in the future, however it may take a great amount of time before seeing any reward. Many things can put a hold on the project or delay it. 

Delays can be caused by:

 

Advantages Associated with Investment Crowdfunding

When starting out as an investor, there are great advantages that come with the risks. Being smart and cautious can help increase these advantages. Investing in the correct crowdfunding startup will be a win-win for both parties due to the fact that as the startup strives and grows, so does the investor.

High Satisfaction Rates 

Personal satisfaction is a common theme for why investors choose a certain startup. When a startup company has a project or service that correlates well with the investors values, the satisfaction rate is increased. As an investor, choosing businesses that align with beliefs or ideals is crucial for properly feeling as if you are getting a return.

For example, if an investor cares a great deal about no children going hungry, they may decide to invest in a startup that has a plan to help this problem. This creates a deeper connection between both the startup and the investor, leading to better outcomes and growth.

Investing is No Longer Entitled to Just Accredited Investors

As the social network of the internet grew, so did investors. Before the Jobs Act in 2012 and crowdfunding began, only accredited investors (individuals with a high net-worth who earn or own a high amount of money or funds) were allowed to invest in startup companies. The Jobs act encouraged crowdfunding of small businesses and made it available to more than just accredited investors. This hindered a lot of private investors from putting money into businesses that needed it. Investors needed to invest a large sum of money in order to meet the threshold, but now, equity crowdfunding permits the average everyday person to become an investor with smaller increments. This has created an equal opportunity for both parties of investors.

Opportunity For Financial Return 

Investors have the opportunity to gain huge returns from equity crowdfunding. For example, take a look at Jason Calacanis who invested $25K into Uber when it was just starting out. He made $125 in their IPO (Offering shares of private companies to those in the public) which is a major return. Finding the right investment opportunity can generate a huge change in direction for investors. Keeping a close eye on how the startup is doing and knowing when a loss is bound to happen will prevent investors from damaging their earnings.

Overview: How to Assess Startups for Investments

  1. Due Diligence : Research company statistics and growth prospects along with the crowdfunding site
  2. Evaluate other investors and competitors
  3. Assess the founder and the teams industry skills and knowledge
  4. Have some experience in the desired startup industry
  5. Understand industry trends and how the startup falls on the line
  6. Set expectations years in advance
  7. Set your risk tolerance and investment strategies