A startup is a small business that is in its early phases of growth. One or more entrepreneurs or founders come together to form a startup to produce a product or service for which they feel there is a market. These businesses often start with high expenditure and little income, so they seek funding from several sources.
In other words, we can say that startups are businesses or initiatives that are only focused on bringing a single product or service to market. These small startup businesses lack a complete business strategy and, more importantly, sufficient finance to go to the next level of development. Their founders start most of these startup businesses.
A startup company may need finance for one, a few, or all of the purposes like team recruiting, prototyping, working capital, marketing, licensing, and so on. An entrepreneur must understand why they are asking for finance and its need for it. Before approaching investors, founders should have a clear financial and business strategy.
But if any startup company or founder wants to raise funds, they must go through different funding stages. Individuals or groups use startup funds to increase funding for their new firm, allowing it to flourish. When investors contribute funding to a startup, they do so in the hopes of receiving a more significant amount of money from the company in the future. Depending on how much money someone has put into a firm, they may be able to make business choices that impact how it operates.
There are a total of eight funding stages available, and these are the following:
1. Pre-seed funding
2. Seed funding
3. Series A
4. Series B
5. Series C
6. Series D and beyond
7. Mezzanine funding and Bridge loan
But going through these given stages, a company or a founder loses a considerable amount of their ownership or Equity of the company, which affects them in various ways in the future. There are several ways available through which a startup company can raise funds without diluting its Equity.
Seven ways to finance a company without diluting Equity:
Nothing is available free, but grants come close. Growing enterprises get funds from the central or state government and municipal and private organizations. These grants are meant to encourage small businesses, innovation, and economic activity.
No one gives anything for free. Grants, after all, don’t have to be returned, and they don’t dilute your ownership.
Many grants are designed to help non-profits, community-based enterprises, or entrepreneurship in a specific demographic. They also give attention to innovation, practical progress, and projects that help address a problem.
2. Business Loan
A number of conventional and alternative lenders provide business loans. These loans can help your company expand, support new research and development, expand into new markets, improve sales and marketing projects, recruit new employees, and much more.
There are many different sorts of business loans, and the alternatives vary based on your company’s requirements, the entire term of the loan, and the loan’s unique conditions.
3. Personal Savings
When you finance your startup by your personal savings, you invest your own money to start your firm and owe no one else in the process; this is the most enticing type of funding. In finance, personal savings provide you with complete control over your company, allowing you to do anything you want with your money while also giving you the comfort of knowing that you are funding the firm with your own money. However, if the company fails, all of your hard work in saving would be for nothing.
4. Family and Friends
In this, you ask your friends, family, or close acquaintances to contribute to your company’s funding. This investment is more concerned with the connection than evaluating a viable company idea. This sort of finance aims to assist a firm get off the ground to the point where it may seek and receive other types of funding without sacrificing its Equity. There are speedier and more flexible payment options available in this financing method, and you won’t have to give up any equity.
5. Small business’s credit cards
Business loans are available from a range of traditional and nontraditional lenders. These loans might help your business grow, fund new research and development, expand into new markets, strengthen sales and marketing efforts, hire new personnel, and more.
Many types of business loans are available, and the options vary depending on your company’s needs, the loan’s length, and the loan’s specific terms. There has also been a new generation of credit card issuers that cater to small businesses and do not demand personal guarantees, which means that using the card will not affect your credit score.
6. Equipment loan
An equipment loan can help a small business receive the equipment it needs, which can help its financial status. In addition to equipment, these loans can be used to buy things like machinery and software. A down payment of 20% of the equipment’s purchase price is typically needed, and the equipment itself secures the given loan. The interest on the equipment loan is paid monthly or quarterly (depending on the client’s and bank’s preferences), and the principal is usually amortized over two to four years. The amount of equipment loan is defined by the amount of required amount and the size of the company, and interest is payable at a set or flexible rate.
Crowdfunding is the process of soliciting money from many people, usually through popular crowdfunding sites or organizations. This will allow entrepreneurs to raise beginning capital for their businesses and may also aid in promoting a company’s goods and services. Starting a crowdfunding campaign is not very difficult. The company have to create an emerging profile on a crowdfunding website, outlining your firm and its functioning, as well as the amount of money you want to raise. People who are interested in what you’re trying to do may give to your campaign in return for a reward (one of your goods or services, a discount depending on the amount donated, or some other benefit) or profit share.
Edited by Prakriti Arora