Types of Funding for Startup Businesses

By 12/12/2019Uncategorised

There are many different types of funding options available for startups and new businesses, from various different sources which should be considered when starting up any type of business. Most businesses when starting up will inevitably need at least some degree of funding to cover the costs that will accrue. This can often become quite the hurdle for many entrepreneurs, who often lack the personal savings needed to financially support their own business through its initial phases.

Sourcing other means of funding can therefore be a great way for budding businesses to get the financial support they need to develop and flourish within their industry.

It is important that when looking for funding for your startup, you explore the different options available to you and specific for your industry and business. Knowing the various funding options available for your startup or other business can help you to explore and compare the best type of funding for your business’s financial situation, providing the best environment for your business’s growth and success.

Whether your business is a growing business or a struggling business, always consider the main types of funding options available for startups, which may well help you in the pursuit of business success.

What Types of Funding are Available for Startups?

There are many different types of funding options available for a startup business of any nature. With different types of businesses having very different needs, financial support is no exception, those who have started up a business should carefully consider each funding option available to ensure their startup is funded in the most effective and efficient way possible.

Three of the main options startups can use as a means of funding include:

  1. Angel Funding
  2. Crowdfunding
  3. Venture Capital

Each of these funding types can benefit budding businesses in different ways and each will also have its own pitfalls to consider.

Angel Investor Funding

Angel Funding is a method of funding that is provided through a business angel. A business angel (or angel investor) is a particular, notably affluent individual who provides funds for businesses. Always be aware that it is important that when seeking an investor of this nature, it is crucial that whoever invests is a suitable fit for your business aims and goals, ideally with the necessary industry expertise.

These types of investors are typically used in the first round of funding a startup will raise for their business. In return for the funding, a business angel will receive equity (a percentage of shares) in the company receiving the funding.

Why Angel Investors?

Angel Funding is a great way to get your startup business off the ground, as it provides financial support necessary for a business’s growth, and will often provide this support when the majority of other investors are not prepared to fund them in such a risky period of the startup’s development.

Additionally, angel investors (who are most likely very experienced in the world of business) can also provide their funded investments with invaluable knowledge to help improve a startup’s plans for development, further improving its rate of growth and success.

Raising Money by Crowdfunding

Crowdfunding is another method of funding in which a business obtains financial support from a larger group (or crowd) of people. The people that make up this crowd of funders can be everyone and anyone; from family and friends to loyal customers to other means of investors and fund providers.

There are different types of crowdfunding businesses can undertake to acquire funds, one of the main types of crowdfunding sources used by companies comprising equity-based funding.

Why Crowdfunding?

Much as with Angel investors, potential crowd funders would be more inclined to pay into a crowdfund for enticing returns, such as shares in the company or even a gift-based incentive.

However, not all means of crowdfunding are required or obliged to give something to the funders in return; a less commonly used form of crowdfunding known as ‘donation-based funding,’ in which investors will not get any returns, however may still be enticed to invest if the crowdfund is for a good cause and/or helps those in unprivileged and struggling positions.

Venture Capital Investors

This is one of the most commonly utilised sources of funding for businesses across the world. Different to Angel Funding, Venture Capital investments typically involves an entire firm or professional body of people rather than one particularly affluent individual as in the case of an Angel Investor.

Venture Capitalists are private investors who choose to fund startups that have shown potential and promise for future success. Venture Capital is a long-term means of funding, in which the startup is required to repay the investment with interest added.

Why Use Venture Capital Funding?

Venture Capital can be a great way for a business to acquire the funding that is likely badly needed for growth and development.

However, for those looking to retain complete and total control over their business, Venture Capital may not be the best means of financial support, and the Venture Capitalist will more than likely stay involved in the running an growth strategy of the business, ensuring that they are considerably more likely to nudge the business in question along a path of success, which will also help them recoup their investment.