The 3 ways most start-ups are raising capital today

One of the greatest challenges all entrepreneurs face in starting their own small business is ensuring they have enough capital behind them to turn their dream into reality.  The term ‘capital’ relates to the amount of money required to launch the business and take it from an idea into something tangible with traction.  

Funding your business idea and getting it off the ground is both an art and a science; yet there are so many things to consider, and so many hats for the entrepreneur to wear that it can get very confusing and tiring to keep all the plates spinning.  One minute you’re having HR meetings with a credit control recruiter, the next minute, you’re having finance meetings with your bank manager, then marketing meetings with your creative team.

Indeed, entrepreneur’s are known for being ambitious visionary leaders, yet they are also known for being workaholics and perfectionists that struggle to let go of the reins of control within their business, operating from the paradigm that nobody can do something as well as they can.  This is a very limiting belief to have, in business, as there’s a certain point that necessitates building a team. If you’re considering raising finance, then you’re probably at this point, which is where you need to raise capital to fund the salary of your team.

Raising capital is rarely an easy task, and for many entrepreneurs it can be a scary process – going before a panel of investors and being grilled about their business, for example… or even securing a business loan on their house, whilst it circumvents the need to “sing for their supper” in the sense of convincing investors – it now makes their world very unstable, given that they now have the security of their own home riding on their business being a success.

Entrepreneur’s can face immense emotional pressure and work very long hours; all the time knowing the odds are heavily stacked against them… but that’s what makes an entrepreneur an entrepreneur is their determined spirit; they are risk takers, they are modern day explorers and voyagers found in ancient times; setting off on journeys into stormy and perilous seas in pursuit of discovering great new riches.

However, without capital behind them, the chances of them even getting out the harbour are incredibly slim.  This article offers three suggestions to think about when raising capital:

GET A BUSINESS LOAN

The most traditional route for setting up a small business is to get a small business loan from a finance company such as a traditional bank.  This is possibly one of the most easy, reliable, and independent ways of financing your business. You keep complete control of your company, as you aren’t having to offer equity to external investors, who each get a say in how your company is run – and convincing one person, is a whole lot easier than going around investor meetings.

FRIENDS AND FAMILY

In many ways, the most ideal place to look for financing your start-up is your own savings account – however, there’s a good chance your savings will already be depleted if you’re someway down the road of turning your entrepreneurial dream into reality – meaning, you might have to turn to friends and family for a little support.

If you have wealthy friends and family who are open to backing your business for a small incentive (such as interest on the loan or equity in the business)  this can be a great option, as it will cost less and be easier to arrange than commercial financing; however, borrowing money from friends and family can be a very stressful experience that totally changes (and sometimes annihilates) friendships.  It might be worth considering the potential strain put on your friendships should the business not turn out to be a success.

CROWDFUNDING

A recent trend in raising startup capital is that of crowdfunding; where you pitch your idea on an online platform such as www.crowdfunding.com and strangers can offer bits of cash to back your idea – but these ‘bits of cash’ can accumulate to several million dollars.

Crowdfunding sites are particularly good if your project has an element of social value about it, not that it has to be a non-profit social enterprise… but a sense of “giving back” as people are keen to back projects with a compelling social story.  

Think of TOM’s for example, who operate a policy of donating a pair of their shoes to impoverished communities for each pair that is sold.  This hooks people in, and stimulates the heart and mind of people that go on to share the concept – and this is where crowdfunding can be exceptionally powerful; when the campaign goes viral.

*This is a contributed post

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