Funding for startups: where to find investors today

Overview of the challenges and importance of funding for startups

Before we take on the question “How do startups get funding?” and explore it in detail, let’s find out why it is so important to get finances for a startup business and what obstacles you may face on your journey. Startup capital, or so-called startup funding, is an inevitable part of realizing an interesting idea and launching a new business. It enables business owners to improve the workflow within a company, expand their businesses, and make them more attractive to potential clients. In other words, it unlocks an array of opportunities for business development and growth. Almost every positive change requires investments, especially in business buildout. In short, there are several compelling reasons to secure funding for a successful startup launch.

First, you need something to start off the ground. Nothing comes from nothing. You need some foundation to breathe life into your business idea and make it work. Getting funding allows you to shape your business the way you want and nourish it with all the necessary sources for growth. Of course, some people invest their own money in their business start. However, it is pretty hard to obtain profit and the desired results from just self-funding.

Second, entrepreneurs need funding to scale up and expand their businesses. If you want your company to succeed in the long run, you need sufficient financing to act according to your plans. Expansion may require moving into a bigger facility, creating new services, updating products, and hiring new employees. So, if you get enough funding for your startup business, you grab more growth opportunities and make your business targets come true. You may also need to purchase inventory and assets required for efficient operations. For example, you should cope with increased sales and demand, and that is why you need machinery for better production and vehicles to encourage your brand’s expansion. Buying tools for your employees so that they can accomplish their tasks effectively is also a must.

Another reason to do your best to get funding for a startup business is your need to develop new solutions for your clients. New services or products require extensive research, testing, and thorough development. If your business operates in manufacturing fields or technology, it may need expensive IT equipment and software to offer quality products and services to the audience. In addition, you should remember about new partnerships, brand acquisitions, meeting compliance standards, and marketing opportunities. These points require certain funding to ensure that your startup gets all the means to succeed.

As for the funding challenges for startups, the primary ones include finding the right investor, economic uncertainty, competition for funds, valuation discrepancies, legal and regulatory hurdles, and increased scrutiny.

Types of startup funding

Now, we have established that getting funding is crucial for smooth startup development. But how can you secure finances for your business idea? What are the ways you can opt for when seeking sufficient startup capital? Below, we explore various startup funding sources and types.

1. Personal funding and bootstrapping
• Finding an investor is a daunting task requiring persistence and confidence. Now, it is probably harder than ever. So, you can become your own investor and pour your money into your business. It works the following way. You can self-fund your startup if you possess enough personal savings. By funding your startup with your retirement savings or your own cash, you keep full control of your business, which is rarely possible with investor funding. If you invest your own finances, you avoid hassle and paying interest, unlike the case with loans. Alternatively, you can use low- or no-interest credit cards, as well as mortgages and lines of credit on your house. Bootstrapping a business implies utilizing only existing resources for business development. For example, personal computing equipment, garage space, and personal savings.
• This type of funding startup companies has its pros and cons. So, if you decide to invest your personal finances into your business, you should accept the possibility of losing your money in case the business goes bust. Also, if you use credit cards, you should keep in mind that you may have some debt. Of course, with a prospering business, you will be able to pay back. However, in a less optimistic scenario, you will have to manage your debt.
2. Friends, family, and personal network funding
• When it comes to finding finances for your startup business, you should make use of all possible opportunities. While you may face difficulties convincing banks or investors of the potential of your business idea, there are people who often believe in your dreams and consider you a reliable one. They are your family members and friends. Borrowing money from them is a common way to kickstart a business. Your close ones may want to help you support your startup and give you the funds required to boost your business. Family loans are what help a lot of businesses at the beginning of their journey. They may come with little or no interest obligations, which is a huge plus for your business start. It enables you to avoid paying extra costs. 
• However, there is a significant drawback to this type of funding business you should keep in mind. Mixing family, friendship, and money can lead to an array of misunderstandings. You can end up getting sour relationships with your close ones if something goes wrong. So, be careful and make sure that you and your friends or relatives gain sound legal advice. Also, try to set clear and transparent expectations for both parties by putting the loan terms in writing. Inform your close ones about the challenges that may arise and make sure they accept and understand the involved risks.
3. Angel investors and Venture capital
• Raising money for a startup business is often a challenging task. While convincing your friends is pretty easy, persuading investors of the quality of your business idea can turn out to be a challenge. You should do your best to highlight your strengths and showcase the advantages of your business. It can take some time and effort, but securing investments allows you to save your own funds and enhance your startup substantially. You can go for angel investors or venture capitalists. Let’s break down how both of them work and figure out the difference between angel investors vs. venture capital.
• Angel investors are often well-off people who believe a certain idea has potential and are ready to invest their own finances in a startup. Angel investing typically involves one or a few individuals pouring a personal investment into a business. Usually, this form of startup funding requires business owners to give up partial ownership of their companies as angel investors provide their money in exchange for equity. Keep in mind that angel investing doesn’t imply monthly payments. Also, some angel investors may stick to a hands-off approach, while others may want to stay aware of more business operations and take an active role in the decision-making process.
• Venture capitalists stand for business professionals, which are primarily investment firms that are ready to invest finances into a startup on behalf of a risk capital company. This means they usually use other people's money. Venture capital implies providing early-stage funding for startups. Mostly, venture capitalists tend to provide funding only to high-growth businesses. They do this because of the notable risks involved. There will be no return on investment (ROI) for investors if your company doesn’t reach its goals and succeed. Plus, you should know that venture capitalists often expect not only equity but also a seat on the board of directors in your company. 
4. Crowdfunding for startups
• If you want to raise enough business start up funds for your company, you should consider this form of funding thoroughly. Especially if, besides a great idea, you can boast good communication skills and are great at social media. Crowdfunding allows you to secure funding for your startup through social networks and online campaigns. You can use crowdfunding platforms for startups, such as Indiegogo and Kickstarter, where an array of businesses showcased their concepts and had great success.
5. Business grants and Government funding programs
• There are also various government funding programs and business grants you can use for your business development and expansion. Some organizations offer funding to small businesses and companies that are run by veterans, women, and minorities. You can turn to your local Chamber of Commerce or The Small Business Administration to check whether they have local grant money that you can apply for if you fit one of the previously-mentioned categories and terms. 
• However, be careful and make sure these grants don’t have some pitfalls. For example, some of them can require you to agree to certain conditions down the road or pay the money back. By opting for The U.S. Small Business Administration microloan, you can get up to $50,000 for inventory, equipment, machinery, working capital, furniture, fixtures, and supplies. It is worth noting that some lenders providing SBA microloans may ask for a personal guarantee and some form of collateral. 
6. Incubators and accelerators
• Business incubators and accelerators both offer the skills to get your startup to its next stage and strong entrepreneurial networks to find backers. Accelerators and incubators provide ongoing support and meticulous training on entrepreneurial skills by offering mentorships and workshops. These spaces stand for part mentorship development centers and part communal workspace. Aspiring business owners get a great start here and unlock an array of growth opportunities. They do this while partnering and communicating with various successful people. You may find these spaces near universities and colleges with a strong business program. However, it is worth noting that accelerators and incubators primarily focus on tech-heavy startups. So, you should make an effort to find the appropriate space that will work for your business.
7. Small business loans and revenue-based financing
• Small business loans are generally great tools enabling aspiring business owners to enhance their startups. There are some banks that may provide significant loans for small businesses. Usually, banks are careful and thorough about giving finances to small brands that just get off the ground. So, it can turn out to be a difficult task to qualify. You may need to showcase extensive proof of your business profitability and solid marketing potential. However, there are alternative choices, such as lending companies, that can be even better equipped to support your business financially. Make sure you learn more about them before signing any document.
• Revenue-based financing usually means an agreement between a brand and an investor who is ready to purchase the company's future projected revenue streams at a discounted rate. This is a form of financing that is repaid based on a percentage of future sales. You can opt for this option if your business has a high potential for future revenue and is growing quickly. 

Preparing to pitch to investors

Preparing for pitching to investors is a crucial part of finding and getting funds for a business. You should know why you're raising investment capital and be able to explain the exclusiveness of your business idea. Your task is to do everything possible to persuade them of the extensive potential of your startup and the great benefits it can provide. Understand the fundraising landscape and begin your pitch with a compelling message. Your presentation should address the problem your startup solves in the marketplace. So, take time and effort to craft a quality presentation yourself or hire professional designers to deliver a professional and custom pitch deck for your startup. Practice your pitch and make sure it is easy to perceive and remember.

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Alternative funding options

You may consider alternative financing options when seeking funding for your startup. One of them is to participate in local contests that imply some financial prize. If you win, you can use it to purchase inventory, software, supplies, and so on. In addition to this, you can keep your day job, which lets you live a relatively comfortable lifestyle and meets your expenses. It can feel hard and complicated at the beginning. However, it can help you build your startup business with fewer compromises. 

To sum up

The process of securing finances for your startup will make you face common funding challenges such as limited resources to seek investors, competitive markets, lack of planning, and increased dependency. However, if you choose the appropriate funding from which your startup can definitely benefit, you unlock great growth opportunities for your business idea. With the above-mentioned information about the importance of financing for startups and various types of funding, you now understand what route you may take. Pick funding for your startup carefully and ensure you understand all the terms involved.