Every business wants a strong foundation. After developing an innovative product and gaining a solid customer base, you’ll no doubt want to seek out capital to further your mission and continue to build your business. Just as there are many different types of businesses, there are many different sources of capital. Some entrepreneurs may dig into their own pockets to fund their startups or pursue traditional funding opportunities with investors, but these routes may not be possible or practical for all entrepreneurs.
Here are a few ways that startups can generate capital (some more conventional than others).
For many entrepreneurs the people that want them to succeed most are their friends and family (F&F). Family members and close friends may be interested in giving funds to get a startup off the ground, but you should be careful with this strategy. Many small businesses fail early on and it’s likely you won’t want jeopardize relationships with those closest to you if you are unable to pay back money that your friends and family have invested.
A good rule of thumb with “F&F loans” is to not borrow more than you can realistically pay back. Even though these loans will be more personal or friendly than ones secured through a bank or other “official” source, you should still put agreements in writing and clearly explain the terms.
Entrepreneurs that don’t have the capital to start their businesses themselves may consider bringing on a business partner that does have the necessary funds. If you’re thinking about bringing on a partner, you need to ensure that they see the business the same way you do and that you agree on the goals and milestones for the business.
A partner will have some control over the business, so you want to be sure you trust their judgment and vision. (But even if you trust someone implicitly you should still have a buy out arrangement in case the relationship eventually sours.)
While crowd-funding has grown in popularity over the last few years, it is still an emerging force in the business realm. Sites like Kickstarter, Fundable, and IndieGoGo are popular online but they’re not quite household names. While there have been some major successes in the crowd-funding space (such as the Pebble Watch and Oculus Rift), there have been many failed campaigns that didn’t meet their goals.
Crowd-funding’s power comes from the audience – funds come from the public and potential users of your product or technology. Startups present their ideas to the public on these websites and people can choose how much they want to give to see the project come to fruition.
Many of these sites also allow for rewards systems that allow startups to offer rewards for donations, including access to the proposed technology or product. It’s a great way for startups to generate capital from the people most likely to be interested in their products, services or technology.
Most great businesses start with a great business plan. Luckily those dynamite business plans can earn entrepreneurs some serious cash. Business plan competitions are becoming increasingly more popular, and some pay out thousands of dollars to the winning entrepreneurs.
When we first launched Creately competitions helped us a lot with our initial funding. The cash prizes are great and helpful but what’s even more helpful is the recognition and the media coverage you get from winning these events. Even if you didn’t win anything make sure to participate in start-up events because the benefits are incomparable.
Each of the above solutions for generating capital is unique, and each has its own pros and cons. The first step when seeking funding is to determine the right source of capital for your business. Once you understand that, you will be better prepared to examine all possible opportunities and make more informed choices.
Megan Ritter is a graduate student at USC and an online marketer. Follow her @megmarieritter.