To raise or not to raise capital for startups is a topic that is discussed every so often. However, the big question is not whether startups need to raise funds; it is about when they should raise funds.
Here are some of the best ways to raise capital, options for funding and how to make your best pitch.
There’s no getting around this one. Only in very rare instances can a startup happen with a founder investing $0 of his or her own money. It doesn’t have to be a fortune and the total sum is dependent on the startup and a variety of unique circumstances. However, consider it your bid to yourself and prioritize it.
Family and friends
This is the one that many entrepreneurs shy away from, but it’s actually the absolute best option. Don’t worry about sounding like you’re begging or putting your loved ones in an awkward position. If you present your pitch professionally and treat them like real investors (because they are), it will go smoothly even if you’re turned down. You might be surprised by who has extra cash and is interested in supporting your dreams.
Banks and traditional lenders
Small business loans from traditional lenders (banks) can offer surprisingly great terms and interest rates. Of course, this depends on your credit profile and the type of collateral you can offer up. This is the reason why you need to have a well drafted business plan in place. From a traditional standpoint, this is your best bet for getting capital and you can help optimize your credit score at the same time. Plus, securing this loan helps other investors see that you’re a “real company.”
If for whatever reason you don’t qualify for a small business loan, there are oodles of crowdfunding options available. Do your research and select a reputable company with a great success rate. This is a less orthodox approach, but it works wonderfully for many people in your position. Just make sure you carefully look at the terms and rates, and perhaps have a legal advisor chime in.
Investment companies and angel investors
This is the cream of the crop and the most difficult to secure. Some investment companies have very clear directions for pitching while others will basically come to you as if by magic. To pique the interest of these lucrative investors, it’s all about PR and marketing even at this level. You might be exactly what they’re looking for, but not if you’re not visible