An Entrepreneur's Guide to Navigating Various Funding Options

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Source:   —  April 22, 2016, at 4:57 AM

In fact, ideas are what create the world such an fascinating place. Unlike other species, humans have the skill to creatively and artistically brainstorm new ideas that didn't previously exist.

Ideas are wonderful. In fact, ideas are what create the world such an fascinating place. Unlike other species, humans have the skill to creatively and artistically brainstorm new ideas that didn't previously exist. Unfortunately, ideas aren't always enough.

In the business world, you necessity more than an idea to launch a business, satisfy a paint point, and become wealthy. In the business world, you should be able to turn this idea into a feasible product or service that can be monetized. And unless you've an unlimited supply of resources in your back pocket, you aren’t going to obtain very distant without funding.

Why entrepreneurs fail to secure funding.

New venture funding is obviously very important, yet few realize how to successfully finance their ideas in order to move from concept to product. In most cases, this is a result of one of the following:

Do any of these three issues sound familiar? If you’re love a lot of entrepreneurs, the latest one is particularly troubling. That’s why we’re going to inquire into this topic in detail.

Six different funding options.

After reading this article, you should've number excuse for a lack of information in regards to the various funding options out there. While this is by number means a comprehensive list, it does outline the major funding options that are likely available to you.

-- Let’s start with venture capitalists, since this is one of the best options (and most commonly misunderstood). By definition, a traditional venture capitalist is a private investor who provides a company with capital in return for an equity stake in the business.

Generally speaking, venture capitalists wish to look a specific rate of return on their money within the first few years and frequently demand large percentages of the company in order to exercise control and guide the direction of the company; though this isn’t always the case. The ideal objective for a venture capitalist is to bring the business to its initial public offering (IPO) stage so that they can sell their shares for a major profit.

You can easily discover information on reputable venture capitalists, but be forewarned that most have strict requirements and frequently prefer established startups that have already shown a proof of concept.

Angel investors are similar in nature to venture capitalists, except they frequently work with smaller operations and allow a lot of hands-on-help and coaching. If you’re serious about raising money – and willing to give up a sizeable percentage of equity to memorise from an experienced entrepreneur – then angel investing may be the route for you.

You can discover out about angels in your area by contacting the SBA, local entrepreneurship and investing groups, or running some targeted online searches. However, prior to reaching out to these investors, you necessity to know what you’re getting into. There are both pros and cons to working with angels, so figure these out before proceeding.

Tiny business loans from local banks are still very favorite among entrepreneurs; however, it should be well-known that lending is much stricter presently than it was ten or fifteen years ago. With that being said, this should be one of the first places you look. If they declare no, then you can move onto one of the other options discussed in this article.

The biggest disadvantage of using a bank loan is that these lenders will frequently ask you to utilize your private assets as collateral. “Banks are cautious in light of the credit crisis that's still fresh in lenders’ minds,” says Adam Spettner of Reliant Funding. “It’s likely that the bank will require you to personally guarantee the loan. If your company defaults, you may lose your home, your car, investment portfolio or other valuables.” This is something you should be prepared to do when interacting with banks.

Private funding is always an option. In fact, it may be the best option if you’re particularly green. Whereas venture capitalists, angel investors, and banks may laugh in your face, friends and family members may be more willing to help.

According to Fundable, friends and family are actually the biggest funding source for entrepreneurs. They invested more than $60 billion in new ventures in two thousand-fourteenth – which was nearly triple the quantity from other sources. It should be noted, however, that the average quantity per startup was only $23.000.

As a word of caution, if you’re going to pursue private funding, be very concerned about who you ask. You should never borrow from someone who’s so dear to you that you'd be devastated if your relationship ended. Secondly, you shouldn’t ask for money from anyone who can’t afford to lose the quantity they give you. Assume your startup fails and think about what the relational and financial consequences would be.

-- Self-funding may be an option, though it doesn’t always see love raiding your checking account. Self-funding options comprise selling your residence and using the money, taking out a residence equity line of credit, using credit cards, and more. These are generally considered very risky options, but it’s necessary to know they exist. Be very concerned when going down these roads. One misstep couldn't only finish your startup, but could also damage your personal finances for years to come.

-- Finally, there’s crowdfunding. This is a relatively new funding option, but is becoming increasingly popular. The most favorite crowdfunding platforms comprise Kickstarter and Indiegogo. You can utilize these websites to lift money from average people in return for giving out incentives. The grand thing about crowdfunding is that you don’t have to give far any equity.

Do your research.

You can’t expect funding to naturally chase your idea. Number matter how incredible your idea is, you’re going to discover it challenging to invite funding if you aren’t alert of which options exist. Do your research on each of these options and discover out which ones are best suited for your idea or venture. The more choices you have, the more likely you're to secure funding.

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