Do you have a business idea? Are you ready to develop it? The idea of forming your own Startup excites you, but … is money a problem?
Okay do not worry! The main concern and first task for every startup creator is the search for solid and secure sources of financing that provide the necessary wings to fly the business idea.
Where to start?
One of the most common failures is to focus all efforts on the search for financing without looking at the image of the business idea. What does this mean? If we need to ask for financing, we must offer a professional image and guarantees that facilitate future financing.
At a minimum, the following concepts must be taken into account before creating your startup …
1) Business Plan: It is necessary and essential to have very clear ideas and translate them into a business plan that shows all the phases of the business project, without overlooking the economic amounts to be covered: presentation of the project, idea, customers, competition, business strategy …
The business plan is the map to success, and is the best way to explain your project to third parties.
2) Definition of legal form: The more professionalism and seriousness you transmit, the more possibilities you will have to obtain sources of financing. To do this, you must create your startup legally, selecting the legal form and making the records and tax procedures.
With your Startup created and a well-detailed business plan, you will have a perfect cover letter to show to the future sources of funding.
And now? What is the next step? The search for financing! We tell you 10 highly recommended alternatives to obtain financing for your project.
Take note and good luck!
Funding alternatives for Startups
We know! Asking for financing is not easy, so it is very important to rely on a great business plan and an image of strength and professionalism that allow you to strengthen your startup. But what alternatives do you have? These are the most common and current.
1. Investment of the founders
Very valid option if several partners coexist at the head of the business project. There is a saying in this context that says: “No one will invest in your business if you have not done so previously.” The investment of the founders of a Startup offers an image of security and confidence in the business, a very important and fundamental value to attract investors.
2. Family and closest environment (Friends, Family and Fools strategy)
Friends and family members can support your business by lending you funds. This is the most basic form of crowdsourcing of companies, even if it seems a lie. It works!
According to studies, every year, between 35% and 40% of entrepreneurs receive capital from friends and family. It is not about sophisticated investors, they are simply people who trust you and your project.
It is a type of investment with a high risk without any guarantees … but without risk, there is no success.
3. Equity Crowdfunding
One of the most named financing concepts in recent years is the so-called Equity Crowdfunding. What is this?
Equity Crowdfunding is the process by which people invest in a company (Startup) in exchange for shares of that company. A shareholder has partial ownership of a company and benefits if the company performs well. It must also be clear that if the company does not yield the “shareholder” will lose as well.
Crowdfunding is the practice of financing a project or company by collecting small amounts of money from a large number of people, usually through the Internet. Crowdfunding is a form of crowdsourcing and alternative financing.
Large companies and projects have achieved the success and the push they needed thanks to crowdfunding, positioning themselves as one of the most used and effective financing alternatives.
There are crowdfunding platforms that allow to give visibility to projects and manage the financing process through milestones and incentives. Thousands of projects become reality thanks to the crowdfunding system.
Crowdlending allows companies to finance themselves through a large and diverse group of people, without having to go to a bank. In the crowdfunding model, people lend small amounts of money to a company in exchange for a stipulated financial return; in this case, the amounts are higher. With crowlending, a new alternative is opened to obtain financing by diversifying the sources used and without resorting to traditional banking.
Probably one of the most innovative and popular financing options that exist.
Playfunding is a micromanagement option in which projects get the money from the number of advertisements that the sponsoring companies insert.
Through a Playfunding platform, projects enter a pre-selection phase. At this time, they have to wait for an advertiser to invest or sponsor their project. You have nothing to lose!
Very useful financing alternative that helps companies with cash problems. Allow your company to finance invoices and transfer them to a financial institution so that it is the one that charges it, with a discount, but that improves the company’s operational treasury substantially and avoids the risk of default.
This is a modality that can only be used when Startup already takes a tour and complements the financial management of a company.
8. Business Angel
A Business Angel is an individual who invests his own money and time directly in companies, in which they have no family connection, hoping to obtain financial gain.
Business Angel differ from passive private investors because of their commitment to invest both financial capital and intellectual capital (they usually guide and advise during the business process).
In fact, their intellectual capital, their time, contacts and experience are seen as a key element in this investment strategy, which helps mitigate risk and promote success.
9. Initial Coin Offering (ICO)
Another alternative that derives from the world of cryptocurrencies. ICOs are basically block chains, the cryptocurrency version of crowdfunding.
Potential investors acquire a percentage of an asset or rights over a virtual currency. It is a cross between crowdfunding and an IPO, but for a cryptocurrency. This can mean exclusive access to the services offered by a cryptocurrency company, an asset to buy, market … and much more.
How does it work? Startups carry out an initial coin offer, creating their own new cryptocurrency. These currencies are typically called “tokens.” The number of chips and their initial value are established. The other party invests in them. Despite being a very novel and alternative way of obtaining financing, it is extremely difficult to obtain in Spain, and only companies with a focus on cryptocurrencies and a powerful legal team could get it, so it is a more theoretical than practical alternative, but very interesting.
10. Bank loan
Finally, we cannot fail to point out the financing alternative that banks offer. Actually, it is not one of the best financing options for Startups, but if other alternatives do not work it is a way to discover.
One of the biggest problems in obtaining bank financing is related to the conditions linked to loans or loans, including a good credit history.
Who and when do you invest in a startup?
You already know the different sources of financing for startups, but it is also important to take into account the stage in which your venture is in order to determine which is the alternative that suits you best.
Remember: Features of a Startup
A Startup obtains financing if it convinces and fulfills its obligations and objectives. Let’s see what are the basic qualities and characteristics of this type of companies …
- Great growth Start-up companies are companies designed to scale rapidly, and this focus on growth differentiates them from small businesses. This growth encourages financing.
- This point is also key. New companies get involved with innovation, new ideas and the use of technology for the business idea.
- Startups are generally young and after three years, most stop operating as new businesses.
- Technology Orientation A startup does not have to be, by definition, technology-oriented, although in reality they are often related to technology-based projects or use technology to boost their business models. The most recognized Startups are linked to innovative and technological solutions, short and medium distance.
To start a good financing process for your Startup, it is essential to have a good idea. This idea must be well detailed in a professional and serious business plan. Through a well-developed brand image and supported by the business plan, you will have a very attractive profile to attract potential investors, especially if we talk about the different financing platforms that exist.