Funding is crucial for any business to expand. Unless you’re self-funding your startup, you’ll certainly need to seek funding from an outside source, whether it’s an investor, a business startup loan, or another method.
The startup funding landscape may seem intimidating if you’re just starting to look for capital to propel your business. However, research and intentional strategizing can push you toward the funding you need to take your business to the next level.
In this article, we’ll discuss everything you need to know about navigating the funding landscape as a startup. We’ll start by reviewing the basics of funding for startups and the available funding types before getting into some actionable tips and tricks.
The Basics of Business Funding for Startups
Whether you’re ready to scale your startup or have a business idea you want to bring to life, funding is essential to help turn your dream into a reality.
There are so many variables when it comes to funding a startup, so it’s essential to understand the funding landscape.
For example, many types of funding for startups are suitable for different use cases. Plus, every business will need a different amount of money for different things, so it’s crucial to get very granular with the amount you’re asking for.
It’s also worth noting that investors are often more than just sources of money. They can serve as mentors and advisors for your organization. Their connection to your brand can also elevate your perceived worth among your audience.
Types of Funding for Startups
Before we dive into the tips and tricks you can use to secure funding for your startup, you must understand the options in the funding landscape. With that said, let’s take a minute to review the funding types available for startups.
Venture capital funding is an option for startups that involves providing money in exchange for equity in the company. This type of investment is made by venture capital firms, which are businesses made up of several investors.
Venture capitalists expect to see a significant return on their investment, so they may want some level of involvement in the startup. Determine these expectations upfront.
Angel investors are very similar to venture capitalists in that they invest working capital in exchange for equity in the company. However, they often invest as individuals rather than as a firm.
Some angel investors influence a company’s operations, whereas others are silent partners. You can negotiate these terms before signing on the dotted line.
Startup Business Loans
A small business loan is a traditional business loan that allows you to borrow money to fund your initiatives. The borrower must pay the sum back over time, and you’ll have to pay interest. Small business loans are geared toward startups and small organizations.
These differ from personal loans because financial institutions issue them to a business entity rather than an individual. However, like personal loans, you can get a small business loan at a bank or credit union.
In addition to small business loans from the bank, SBA loans are also an option. If you’re unfamiliar, an SBA loan is funding from the Small Business Administration, a government-funded organization that supports startups and small businesses.
According to the 7(a) & 504 Summary Report from the SBA, the average 2023 small business loan is $479,685. Businesses can use this type of loan for nearly all purposes, including:
- Working capital
Crowdfunding is a way to raise startup capital that involves pre-selling items to consumers. This type of funding allows you to chip away at your funding goal while providing a product to each investor. However, it’s worth noting that to amass a significant amount of funding, you’ll need to sell the idea to many people.
For example, if you’re trying to start a clothing line, you can pre-sell a specific item of clothing to the public. Your buyers become your “investors.” Kickstarter and IndieGoGo are two great platforms for running crowdfunding campaigns.
Equity crowdfunding is a similar way of raising working capital. Instead of selling clothes, you allow the public to buy revenue shares or stocks in your company.
10 Funding Tips for Startups
Now that you’re more familiar with the types of startup funding available, let’s look at some top tips and best practices for securing startup funding.
1. Be Strategic
It’s imperative to be strategic as you seek working capital for your business. Take time to map out how much funding you need and what you’ll use it for.
Consider the types of funding we covered above to determine which makes the most sense so you can create a plan of action for connecting with the appropriate people.
Another part is making sure you have a solid business plan before seriously pitching to investors. Seek feedback on your business plan from mentors or peers with industry knowledge. If you know anybody with experience getting business funding for startups, run your business plan by them, too.
2. Perfect Your Pitch
Before you seek funding, perfecting your pitch is important. You should know precisely what you need and why you need it. Take that information and develop a compelling narrative explaining why someone might want to back your dream.
Since you may be put in situations where you may have to pitch with little notice, it’s important to leverage a pitch deck template to create a professional presentation to have on hand. That way, you can guarantee that you’re ready to jump on any opportunity that comes your way.
And don’t forget that practice makes perfect. Memorize your business plan, know your numbers, and present it all with confidence.
3. Connect with Investors
Building relationships with investors is key when you’re seeking startup financing. Get your accounts correct and utilize bookkeeping for startups to get a proper idea.
You can’t just expect people to give you large sums of money right off the bat, so you’ll have to put effort into getting to know prospective investors long before you go in with the pitch.
While it may be difficult, it’s very important to ensure that you’re prioritizing genuine connections and authenticity. You don’t want to come across as an opportunist.
4. Make Networking a Priority
In addition to connections with investors, strong industry connections, in general, will serve you well in the funding landscape.
Virtual business cards help improve strategic networking and communication for startup businesses. They are a modern networking tool, and startups require multifaceted approaches to connect with potential investors and partners.
Just as virtual business cards offer a concise and dynamic means of sharing information, startups must succinctly present their value proposition to potential funders.
By incorporating virtual business cards into your networking strategies, you can swiftly convey your mission, team, and financial needs.
Throughout the funding journey, these cards become digital ambassadors, encapsulating the essence of the startup and facilitating impactful connections.
In other words, it creates a synergy that empowers you to navigate the intricate funding landscape confidently while forging connections that can catalyze your growth.
5. Study Prospective Investors
Before you pitch to investors, it’s essential to do your research. You should learn about previous initiatives they’ve participated in as an investor, business owner, or operator.
Getting to know your investors before the meeting will let you know how to best speak to them. It’ll also help you hone your pitch specifically for the person you’re speaking to.
Plus, this research will help you determine if they’re a good fit and show you what they can bring to the table.
Many investors also make great advisors. If you need help finding information on certain investors, check out Crunchbase or LinkedIn for more information about their latest projects and accomplishments.
6. Become a Better Negotiator
Securing startup business funding requires negotiation. When an investor or venture capital firm gives you an offer, you can negotiate the terms of how much stake they get for their investment.
You can become a better negotiator by learning negotiation tactics and studying best practices. At the end of the day, practice makes perfect, so if you’re not great at negotiations to start with, you’ll get better with time.
7. Consider Alternative Funding Options
We discussed some of the main types of funding for startups earlier in this article, but if those don’t work, you may have to get creative. If you’re struggling to get working capital through more traditional means, an incubator or grant could be an option.
A popular way to raise startup funding is through an incubator. Business incubators are typically groups of entrepreneurs who sponsor new businesses to help them grow. They often provide the workspace, guidance, and resources they need to get off the ground.
Small business grants may also be an option for startup funding. This type of startup business funding can come from the Small Business Administration (SBA) or other organizations that aim to stimulate the local economy.
What’s nice about small business grants is that you don’t need to repay them, so you won’t pay interest.
A business credit card is an option for those who have struck out elsewhere. However, in the startup phase, this can be risky since failing to pay your business credit card on time could give your business a bad credit score. On the positive side, it can also allow you to build a business credit history.
8. Prepare to be Vetted
When prospective investors become serious, they’ll undoubtedly do due diligence on you and your brand.
As a business owner seeking funding, you can expect your prospective investors to do a deep dive into your business’s historical and current financial situation. The goal? Uncover the inside scoop on the organization’s potential.
They’ll want to know about your assets and liabilities as well. During due diligence, you should be as forthcoming and transparent as possible. Don’t try to hide skeletons in the closet because things will come out.
It’s best to be honest about the less appealing things.
9. Set Realistic Expectations
Navigating the funding landscape requires setting realistic expectations. This mindset will help you make the best use of your time and resources. And remember, having a growth mindset can make all the difference, allowing you to embrace challenges and learn from setbacks.
For example, if you don’t have a solid business plan, people probably won’t want to invest with you. You must be legit if you want an introduction to reputable investors or venture capitalists.
Part of this is realizing that securing funding takes time. With that said, start prospecting for funding way before you plan to use the money. By starting early, you can ensure that you have the startup capital you need whenever you need it.
10. Always Have a Plan B
It’s essential to recognize that nothing in the startup funding landscape is final until the ink dries. Great opportunities may come, but they can go just as quickly. That’s why it’s wise to always have a backup plan and entertain multiple funding options simultaneously.
Plus, nearly one in every five businesses will fail within the first year. The cause? Lack of cash flow to keep them running like a well-oiled machine. Establishing a backup plan to secure funding helps prevent your business from becoming another statistic.
Not to mention, having multiple opportunities available to you gives you leverage for negotiations. For example, if you have a better offer from a less appealing investor, you can take that offer to your ideal investor as a negotiation tactic.
Seeking business funding for your startup may seem like a daunting task, but taking the time to prepare will make it easier.
By understanding the types of funding available and the best practices for hitting it off with investors, you’ll be in a great position to kick off your fundraising journey.
Remember, every startup is unique. So is your path to financial backing. And while funds fuel the journey, it’s your vision, resilience, and adaptability that hold you steadfast and help you accomplish your goals.
What type of startup funding are you most interested in? And how will you use it to take your business to the next level?
Here’s to your success!