The challenging part is choosing the right source of funding. Each source, while promising in its own way, has a unique set of advantages and disadvantages.
Here is a list of 5 sources of funding that are proven to be the most reliable ways to raise money for a startup.
Even though crowdfunding is a relatively new way to raise money for a startup, its popularity is on the rise. When crowdfunding you're literally soliciting funds from a crowd of people.
To get started with crowd funding, you have to first present an idea that you want to receive funding for. From there, people can choose how much they want to give towards that project.
What's in it for the people funding the project? Most crowdfunding sites operate on a reward base model. Those who invest their money into a project are given rewards that go up in value according to how much money is invested.
Some of the most well-known crowdfunding sites include Kickstarter, Indiegogo, and Fundable.
2. Angel Investing
Angel investors are best described as entrepreneurs looking to invest the money they've made back into startups. Some of the largest companies in the world received their first round of funding by angel investors. Including Google, Facebook, Skype and Twitter among others.
The benefits of an angel investor extend beyond just financial benefits. An angel investor is also a valuable source of advice and connections. Some of the most well known networks, which connect entrepreneurs and investors, include Angel List, Golden Seeds, Tech Coast Angels and Investors Circle.
3. Bank Loan
Peter Daisyme from Host, a company that recently raised capital said, "One of the most common ways for startups to raise money is through a bank loan. When applying for a bank loan, it's important to note that you make be asked to have your loan guaranteed by the Small Business Association before it gets approved. We've had the best luck with this as it will be approved or denied within 24-48 hours. It's good because you will know either way and don't have to play the guessing game."
The Small Business Association is a government agency that will guarantee up to 80% of the value of the loan if you meet their criteria. Another way to be approved for a bank loan is to offer some other form of collateral, such as your home.
4. Venture Capital
The goal of a venture capitalist is to aim to invest early in a business that shows high potential for growth. Venture capitalists traditionally receive equity in the business they're funding, these days they may request a combination of equity and debt financing.
Approximately 3 out of 4 businesses with venture capital funding fail. Venture capitalists rely on a big win making up for a lot of losses, and because of this they typically only invest in businesses with high growth potential. Venture capital funding may not be a viable option for you if the market you're in is fairly modest.
5. Get A Business Partner
You might not have the money to fund your startup on your own, but perhaps your know someone who could help you. If you're considering taking on a business partner, it might help to know that 28% of the Inc top 500 businesses received seed funding from a co-founder.
When selecting a business partner make sure you share the same business goals, because they will have as much control as you over the direction of the business. It also helps to have a buy out agreement in place in the event that the business relationship goes sour. This agreement should outline that the other partner must agree to a proposed buyout within a set time frame or buyout the partners themselves.
Have any other fund raising ideas to recommend? Please add them in the comments section!