Wouldn’t it be great if fairytales were true? A fairy godmother would wait in the wings for our big moment and then make all our startup dreams come true.
More often than not, when we finally have that light-bulb moment with a great idea that we just know will work, it becomes apparent that we’re not quite sure how to fund it.
Here are five ways entrepreneurs are able to fund startups:
- Pitch to friends and family
- Venture capitalists
Self-funding is the most common method. We take a bet on ourselves and go from there. If you have a good credit history, you may be able to use the equity in your home via a bank loan, a line of credit or even a credit card to get the ball rolling.
If you do go down the self-funding path, it only affects you. This also means that if things go brilliantly, the profits are all yours! Remember, however, that you really have to believe in yourself and be willing to risk your assets and future earnings to cover costs.
Pitch to Friends and Family
If the phrase “beg, borrow or steal” is starting to haunt your dreams as you struggle to get your startup off the ground, friends and family may be your next port of call. Before you go to the professionals, it’s a good idea to seek out those who already believe in you.
But be warned: mixing friends, family and money can be a recipe for disaster! Be very clear about expectations on both sides, repayment time frames and any agreed-upon interest to be paid, as well as profit sharing. And get everything in writing.
Soliciting venture capitalists is another way to help get your startup off the ground. These professional investors put up institutional money (or their own.) You will need a proven business model, a great plan and be ready to scale. They often look for big opportunities that need serious money. Ask around for a warm introduction to have this method work and be sure to do your homework before pitching.
The government has an allocation of funds set aside to support small businesses, often for new technologies and important causes. Check out the Australia Business Financing Centre to see if your idea is eligible. Grant money can be used to buy equipment, pay for training, fund advertising and more. Chances are they’ll offer unbiased advice to help eligible entrepreneurs in their funding pursuits.
Crowdfunding is the newest source of funding where anyone can participate. If you’d like to see how it works, visit Kickstarter. Anyone can make an online pledge to fund your startup during your campaign. They can pre-purchase your product, give donations or qualify for free rewards down the track, such as a t-shirt.
Whichever course you take – and it may be a combination of many – it requires hard work, dedication and commitment on your part. There is no fairy godmother or magic bullet in business. Whatever you decide is likely to be a trade-off between your immediate needs, long-term costs and paybacks, while still considering the levels of ownership and control you’d like.
With so many options out there, isn’t it time you started living the dream?