5 Ways To Fund Your StartupJohn Rampton
You’ve got an idea that you believe is going to ignite and disrupt the world as we know it. A concept that’s forever going to redefine the way we use technology in our daily lives.
The truth is that ideas, no matter how simple or grandiose, need money and capital to be realized; that, and a great team that believes in the same goal and vision with the same sort of passionate intensity that you do.
Convincing people of the awesomeness of your personal “this is it” moment can wait, but raising funding for your startup cannot. After all, someone needs to fuel up this thing before it can gain traction in your target industry.
I've personally funded several startups that did very well as well as several that haven't done very well. I've also raised millions. So let’s take a look at the hardest step in launching your startup—getting funded. It’s not a simple undertaking admittedly, but with the right person, the right investors, and enough confidence, closing a deal is certainly possible.
Here are five options to look into when scouring for funding.
Family and Friends
Startup Investor Murray Newlands says "The first people that you should look to for investments in your startup are none other than your friends and family. They can help you secure your first round of funding and give you enough leeway to create value around your idea and hopefully catch the eye of the people in your industry."
Be advised though that more often than not, startups fail and there is always that risk of jeopardizing your family’s money as well as friendships in the process. So when looking for funding from those closest to you, ask yourself if they are in a position to afford to lose it. And as a courtesy, be sure to warn them upfront about the risks associated with this venture.
Have you ever heard of incubator programs like Y Combinator or 500 Startups? They offer you some seed money sure, but they are much more than just a few bucks exchanging hands. Not only do you secure good funding, but you also get access to top-notch guidance and mentors in the industry—those who are well-versed with the startup culture and issues that permeate it.
If you need some smart people who know the ins and outs of the startup scene, then joining an incubator is a solid bet.
A lot of people believe in securing common stock for founders during the course of funding. These shares come with beneficial provisions such as liquidation preference and rights.
Having some preferred stock for yourself as a founder’s privilege (and for investors) is going to make your venture a lot more attractive to invest in. Investors believe that you are serious enough to pay them the returns ASAP, so that way it’s all quid pro quo for both parties.
One method that has proven to be immensely popular in the recent years is that of convertible debt. Incubators like Y Combinator are known to secure at least $150,000 in convertible debts for every startup that qualifies for them.
In simpler terms, a convertible debt can be turned into liquid equity in the future, subject to certain goals and milestones that your startup achieves. That’s like having another round of funding waiting for you.
So what happens when you set up a startup venture pool and get investments from partners? That money comes when people set up a fund with certain objectives, objectives that your startup can help them achieve.
That’s how you can get the ball rolling and attain some much-needed funds for your early-stage startup. Funding a new venture certainly isn’t easy, but if you have the right approach and the right tools, it’s certainly not impossible either.