As entrepreneurs just starting out, you are probably rich in ideas, goals and visions – all that is definitely important for success – but without hard cash, all those goals will remain as dreams. Just a few years back, gaining startup funding meant going after banks and private investors, trying to make someone believe in your ideas. The process often took years, and so many entrepreneurs had to shelve their ideas for lack of funds.
But in recent years, there has been tremendous interest and support for start-up businesses. Getting funding is no longer the uphill task it used to be – as long as you know where to look. Here are a few ideas that will help you to identify your options and go for the best possible deal:
Friends and family
Though people generally prefer not to borrow from friends and family, many a successful small business was started based on small initial loans from well-wishers. They are more likely to believe in your ideas and root for your success. The disadvantage is that they might not be well-connected like angel investors might be. But they are still a valid funding option to look into.
Angel investors are individual investors who are willing to invest in a start-up, even at an early stage. In exchange for the money, you will usually have to promise a sizeable share in your company. Since they are individuals, they are of different natures – some prefer a hands-off approach while some are willing to make use of their connections for the benefit of your business.
The challenge lies in identifying the type of person who is interested in your area of business, and convincing him or her to believe in your company. Though you have more flexibility with individuals than you have with firms or banks, this does not come without risks. You might sometimes have to be prepared to go public or even sell your business at a later stage.
Government loans and grants
The government has several programmes intended to provide small business loans and grants to entrepreneurs who qualify. You are more likely to get a grant if you fall into certain categories – if you are a single woman, if your business is likely to provide a service to certain fields, if you are located in certain regions of Australia etc.
Even if your business does not come under special categories, you might be able to find a government loan interest-free or at a low interest rate. Depending on your circumstances, you might even be given a longer term for repayment of the loan.
Venture capital or investor capital refers to the fund provided to start-up companies by venture capital firms that invest other people’s money. It is rare that a venture capitalist will be interested in your business at the very early stage. Usually, it is within the startup to scale stage that investor capital comes into play – too early for bank investment, but after the seed funding stage with a proven concept and initial revenues.
In exchange for the capital, the venture capital firm will require significant control over your decisions and partial ownership including seats on your board. They usually look for ventures with high growth potential, a strong and passionate management team, as well as the potential for a successful exit within the funding cycle.
Loans from reputable banks are also an excellent option as you sometimes get a low interest rate. Microloans or loans intended for specific purposes often have lower interest rates and easier repayment terms. For small local businesses, approach local, community-based banks, as they are more likely to understand your requirements and believe in your venture.
Bank loans are easier to obtain once you have a proven initial track record. You are more likely to get approved if you can provide a detailed business plan, an impressive pitch and specific answers to questions on how exactly the loan will be used.
Crowdfunding is a relatively new idea, but it is becoming increasingly popular for initial funding. Here, you are pitching your idea through a website to a large number of investors. Instead of getting a large amount of money from a single investor, you are getting small sums of money from many investors. Since the risk to an individual investor is low, this is a very good option for smaller or very risky businesses who typically find it difficult to get funding from traditional sources.
As Australian regulations on crowdfunding become more relaxed, more entrepreneurs are turning to this opportunity. Since you are competing with many other projects, in order to succeed, you have to market yourselves well. Be prepared to take the limelight and share your personal story behind your idea.
The past few years have also seen contests run by individuals and organisations to encourage innovative ideas from various fields. These need not be Australian contests – many contests are open to people from all countries. Again, winning depends upon how you present your idea.
Any successful entrepreneur will tell you that finding the right funding can be a struggle. Sometimes, you will get approved by a firm, only to be let down at the last moment. Just remember that you are in it for a reason, and once a deal closes, you will be able to look back upon this time nostalgically and have an inspiring story for speeches and dinner parties.