From a general point of view, the hardest part of a process is in the beginning. This is where most people fail and stop because they don’t think they can continue going on. The same goes for new entrepreneurs and their business startups. In fact, even businesses that had good planning and strategy would struggle at the start. What more of those who did not have proper planning and were not able to develop a good plan for their businesses?
But a good plan alone will not take you to success. The next thing to do after planning is the execution of the process. Here arises one of the most challenging parts of the entrepreneur life — the problem, which is the details about your capital.
What is capital?
The word capital is defined as a wealth in the form of money or other assets owned by a person or organization. Moreover, capital or available or contributed for a particular purpose, such as starting a company or investing. Now don’t get confused between money and capital because they are not entirely the same. Although capital is money, capital is already set to be spent in starting a business or investing. On the other hand, money does not have a specific function.
One may say that they can start as soon as they get their capital. But, the real question is, where you can get that needed capital to start?
It says that you need money to make money, which is true. Although there is a business, you can start off with no money, but along the way, you will surely be needing that. A business will most likely revolve with how well you can circulate the financial resources you have. There is also the factor of great risk, a great reward which implies the bigger capitalist will always have a bigger chance.
It would be impossible for a business to continue operating without capital. With that said, we will now be talking about how you can get the capital you needed for your startup. Here are some of the ways to gain capital for your business startup.
Ways to gain capital
1. Bootstrap your business startup
If you are just starting your business, then bootstrapping or self-funding is one of the primary ways to gain capital. New entrepreneurs will most likely have challenges in obtaining funds for capital since they have no proof of success. This is where a new entrepreneur will opt to fund in his or her capital to start the business. You must have some savings or assets that would be used for the business startup.
Using your own money as capital is the right way of telling potential investors how serious you are. And that you are confident your business venture will succeed. It also shows that you are willing to take the risk for the money that you have worked hard for a chance of success within the business you started. When this happens, you can be the sole proprietor of the business and move from another market type structure such as a partnership or a company from there.
Self-funding or bootstrapping should be considered as a first funding option because of its advantages. When you have your own money, you are tied to the business. At a later stage, investors consider this as a good point. But this is suitable only if the initial requirement is small. Some businesses need money right from day-1, and for such businesses, bootstrapping may not be a good option. Bootstrapping is the most common and efficient way among business startups.
Of course, the stakes would be higher, but as an entrepreneur, you should trust your own business’s potential.
Brent Gleeson, a coach for leadership and team building that specializes in organizational transformation, said that “if you believe in your vision and have an absolute refusal to accept failure as an option. Therefore, you should feel comfortable investing your own money into the business.”
2. Apply for a Loan
Another way to gain capital for your startup business is by getting finance from a loan. Although loans can be risky since you will be venturing into something you are not sure. So if you are good at managing budget and have confidence that your business will succeed, you can proceed with getting a loan. This traditional financing method remains the primary way of small businesses to fund their operations if they can’t fund themselves.
The Small Business Administration (SBA) has reported that almost 75% of funding for new businesses came from loans or other lines of credit. In general, small business loans have the most favorable rates and terms compared to other loan programs.
Small business loans are a traditional way of getting capital for your startup. The bank or financial institution will carefully review every item a business an entrepreneur applied for a loan to be approved. They are most likely to approve a business that has a high chance of succeeding and be able to pay back the loaned amount. The payment will be gradual and of course, with interest added. Interest is the charge from borrowing the money and is usually calculated depending on the loan amount. As we have said earlier, one must be good at finances for this to work. If you are not good at it, hiring an assistant with accounting background would be good.
Of course, the loan application is useless until approved. Make sure you can pass the requirements needed. These requirements will depend on the financial institution, although there are some basic requirements such as good credit records, business requirements, and collateral.
3. Launch a Crowdfunding Campaign
Crowdfunding has been gaining a lot of popularity lately due to its ease of use and effectiveness. The process is almost similar to taking loans, contributions, or investments from different persons. Crowdfunding functions work when an entrepreneur puts up a detailed plan of his business in a crowdfunding platform. This would include goals, plans, how much funding is needed, reasons for funding, and other relevant things. The potential contributors can review that and can choose to support which idea they would like. After that, an online pledge would be made for the product.
Some of the popular crowdfunding sites are Kickstarter, RocketHub, Dreamfunded, Onevest, GoFundMe, Wishberry, Ketto, Fundlined, and Catapooolt.
Crowdfunding is one of the newer ways in which one could gain capital for a startup. Many businesses were successful with crowdfunding, and with the right approach to the community, you can be one of them.
One of those successful companies was Formlabs, which was able to raise $3 million last 2013. The capital gained allowed them to execute their productions and operations to be able to achieve their goals of delivering manufacturing 3D printers. This resulted in capitalists noticing the rise of the 3D printer market. With this, Formlabs was able to close $19 million for their investments and gave them the capacity to expand and grow their business more than they planned for initially.
So, how do you launch a successful crowdfunding campaign to raise capital for your business? Nathan Resnick, an entrepreneur who’s successful in raising money on crowdfunding sites. He said that you must develop your story as “people on crowdfunding sites like Kickstarter or Indiegogo want to know how you turn your idea into a reality.” Your pitch must show the product’s value, the need it serves, and why you require support.
4. Find an angel investor
Angel investors are accredited individuals with surplus cash that have a keen interest in investing in startups. They usually have a
net worth exceeding $1 million or an annual income of more than $200,000. An angel investor can work alone or work in groups of networks to be able to screen the proposals before putting in their investments properly.
Knowing this, angel investors can help a business by providing capital for the startup. In a way, it is similar to crowdfunding, where you try to sell your ideas and have other people fund it. But the difference is that there is only one person or small group of people that will be investing. An entrepreneur should have a great business plan and a timeline for return on investments. Accompany that with a great selling pitch, and you are ready to present it to potential investors. Your pitch should be able to get their attention. It can be done by presenting promising points about the company, and it’s potential.
Some of the big companies that have been helped by angel investors are Google, Yahoo, and Alibaba. These are companies that are very successful today.
A typical angel investor would be expecting an up to 30% equity. They are the ones willing to take the high risk, high reward method. This is because they have the resources for it, and they are already experienced in doing this business.
There we have it, four different ways of gaining capital. Just like every business step, there is a risk on all of them as well as an advantage. The decision of where to go will lie with the entrepreneur. As for your opinion, what do you think would be the best path to gaining capital? Show us in the comment section below.