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Types of Startup Funding
  • What Is Startup Funding
  • Types of Fundings
  • Final Thoughts
Startup Funding

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When starting a business, there are a lot of things that one considers and thinks about. One of these things is where to get funds from to begin with the business. Some business owners are fortunate enough to have enough savings to cover the majority of their launch costs but some need to figure out where to get money to execute their ideas and see their dream of becoming an entrepreneur come true.

A lot of people who are looking to begin their own business do not have the needed funds but that’s quite okay, all you need to have is a great idea and the knowledge of where to seek funds from. In this article, we will tell you of all the ways and types you can get funds for your startup.

What Is Startup Funding?

The process of finding and adjusting financial resources to support a startup idea in the marketplace is known as startup funding. The types of funding vary depending on the maturity of the organisation. Resources would be needed to fund the developmental activities, such as expansion, product development, etc. for the various stages of growth that a startup would and can encounter. Therefore, startup capital is crucial to the success of your business at every level and not just for the early stages.

Types Of Startup Funding

There are a myriad of options to think about when it comes to different kinds of startup funding. There are many different kinds of startup funding. A right evaluation of the costs of your startup and the future growth of your business are necessary to identify the best funding source. The following are the various sources from which you can fund your startup.

  1. Bootstrapping

    As discussed before, many entrepreneurs begin with their businesses only when they have enough money saved up. They like to fund their startup by using their own personal savings. In simple words, you invest your own capital instead of funding your startup with outside sources. This method of startup is called bootstrapping. Until your startup achieves significant development or you acquire outside capital, your initial revenues are reinvested back into the business. This method doesn’t necessarily convey that the company would not require the help of outside funds, it simply means they had the funds to begin with and the fact that they have already set up the business with their own money gives them an advantage to get the next funding.

  2. Friends and Family

    A lot of startup entrepreneurs ask their loved ones for financial assistance. This would be considered ideal for the initial financial resource. Afterall, the people who would support one's concept are undoubtedly their family and friends. Since they already support them, they don't need to persuade them of their competence to manage a new endeavour but make sure to have an open communication and that they mutually agree to invest in the startup.

  3. Grants

    India is a hub of start-ups.It has the second-largest start-up ecosystem in the world after the USA. To encourage startups in India, the government offers various grants to entrepreneurs who want to begin with their startups. These grants come with precise guidelines for who qualifies for small business grants as well as what they are expected to do with them.

    Startup grants are essentially unrestricted funds that can be used to start, run, or support startups. This implies that startup owners are not required to pay back the money they receive. One can go through the grants for which they are eligible and by submitting an application, they can get startup funding. There are certain entities that help startups with raising money using business events and competitions as well.

  4. Crowdfunding

    An entrepreneur can present their company’s idea online together with supporting materials and obtain investment from a wide range of international sources. This process of funding is known as Crowdfunding.

    It is among the greatest ways for a new company to enter the market and determine its position. In general, crowdfunding doesn't demand payback. But there are variations in it such as equity crowdfunding. In this, investors might get payment in the form of shares or revenue shares in exchange for their investment.

    The business owner must lay out a thorough plan for the capital needed or how it would be used in order to secure the funding. To give investors transparency, you must reveal your funding objectives, often known as stretch goals.

  5. Angel Investors

    Angel investors are typically wealthy individuals who are willing to take on high-risk investments. These investors make early growth investments in businesses and support businesses with the expectation of a high rate of return

    Angel investors are risk takers and frequently provide capital or funding to startup's at their early stages, when it might be challenging to find funding.

    Even though the founders or entrepreneurs have an intriguing idea, when they first approach these investors for funding, most of the time they do not have a client base or a working product. But the angel investors continue to support these businesses. In summary, compared to investors who invest in the business in its latter phases, angel investors typically assume the most risk.

  6. Venture Capitalists

    Venture capitalists make investments in companies in order to profit as the business develops. In a company's fundraising cycle, venture capitalists often come in after angel investors though before other types of funding sources like banks. Another factor contributing to the investment amount's higher average is that a venture capitalist is a person or organisation that offers funding for a company's expansion. Due to the fact that these investments are given in exchange for stock instead of debt, the founder of the firm will need to demonstrate promise of strong potential for growth in order to obtain this sort of funding.

    In essence, a business seeks the help of a venture capitalist when it needs the money and other sources are unable to supply it. The objective of a venture capitalist is to invest in a company in its early stages and increase its value before selling their part for a significant profit on the market to finance the firm's expansion.

  7. In a Nutshell

    You can see that there are a bunch of different possibilities of startup funding and that there is a significant amount of money available. Each company is distinctive. It is important to consider the business's situation and the comfort level before choosing a funding arrangement. It's crucial for each entrepreneur to decide which funding option is suitable for the objectives of the business. Before one starts the process of attempting to obtain startup financing, take a deeper look at each source of funding.