Startup Advice

6 Clever Ways to Fund Your Startup

Most startups need a cash injection to be able to grow their operations. Although companies have traditionally financed themselves through bank loans, the face of funding is changing. After the economic downturn, banks have been more reluctant to lend money to startup companies. Luckily, there are many exciting opportunities to Fund Your Startup business — at home and abroad. The marketplace for startup investment has really opened up thanks to the internet and new ways of doing business. Here are six clever ways to find startup funds:

1. Crowdfunding

These days, savvy startups can raise money by asking for donations from the public, through the modern phenomenon that is crowdfunding. Members of the public can donate varying amounts of money to startups that they like the look of. Even if you’ve only got an idea, crowdfunding can allow you to get your concept off the ground.

In most cases, members of the public are not considered investors, but instead receive a small incentive for donating their money. Startups can ‘thank’ their funders by giving them a product, a souvenir or a gift.

Fundable and Indiegogo are the best-known platforms for funding small businesses, while Kickstarter is good for financing creative products. Seedmatch is a new player which allows equity crowdfunding, whereby members of the public can actually invest and get shares. Equity crowdfunding isn’t yet legal everywhere, but it could be a viable choice for funding in the future.

2. Pre-selling your product

If you have everything in place to create a product, except the money, you could consider asking customers to buy your product before you’ve even manufactured it. Pre-selling your product is effectively taking orders and money some time before actually producing the goods.

Any startup choosing this approach must be sure to have all the necessary components lined up to be able to deliver orders. This means making sure that materials, suppliers, manufacturers and distribution have already been researched and sourced before the buying process begins.

You can pre-sell directly to customers on your mailing list, and some startups pre-sell to the public using crowdfunding platforms. Startups which sell directly to businesses could secure funding for product development in return for special packages. Some firms are willing to swap money for shares, exclusivity or a favorable contract.

3. Incubators

Startup incubators may not always offer direct funding, but they usually provide channels to find finance, as well as other valuable benefits. Incubators are organizations which work with a select group of startups that are considered promising. Incubators then give those startups free mentoring, product development help, office space and use of facilities.

Plan9 is a startup incubator funded by the Government of the Punjab; it offers startups within its program a monthly stipend per team member, as well as training, networking events and legal advice. Invest2Innovate gives civic-minded startups business support and mentoring as part of a four-month incubation bootcamp. After incubation, both Plan9 and Invest2Innovate give startups the chance to pitch to angel investors.

Incubation programs are becoming more popular and usually have regular competitions which startups can enter. Other acceleration programs can be attached to university campuses and industry bodies, so may require a bit more research to find.

4. Social Media Funding

Businesses can use social media for many things these days, and that can include finding finance for a startup project. Twitter, Facebook and LinkedIn can all be used to attract attention to your startup — and to ask for funding.

If you’re using social media to find money for your startup, you must make sure you do it in a sociable way. Tell the story behind your startup on Facebook; tell Twitter users how your finished product will benefit them if they donate. This approach is even more effective if you have a social enterprise, and either a large group of followers, or some really influential ones. Use LinkedIn to attract investors by showing your business nous and offering them a stake.

Essential things to consider when using social media to find funding is how you will get people to spread your message and how payments will be collected and recorded. A page linking to Paypal can take care of payment processing, while an inspirational video can help get people talking and sharing your content.

5. Bartering

If you don’t have any finances to fund your startup, you can trade items, goods and services, instead, to get your business going. Bartering doesn’t involve any money, but means swapping one thing for another of equal value. This way you cut out the need for finding funding.

For example, if your copywriting service needs funding to improve your website, find a web developer who needs some articles or advertisements written — and offer to barter. Contracting your own skills in return for other services you need can save you cash and tax. Other ways of getting goods and services for free could be offering a service provider advertising space on your website, sponsorship opportunities, or a percentage of sales for a limited period.

If you’re really clever, you may be able to swap goods and items for slightly more money than they are worth to cumulatively accrue wealth. Canadian blogger Kyle MacDonald famously used Craigslist to acquire a house through a series of trades. All he started bartering with was a small red paperclip. It only took 14 swaps, albeit with growing media attention, for him to progressively trade up to a valuable piece of real estate.

6. Trusts and Grants

Startups can benefit from enterprise grants provided by governments, charitable organizations and philanthropists. Money gotten through grants and trusts usually doesn’t have to be paid back at all.

One of the downsides is that it can take a lot of research to find funding that fits well with your company; but for free money, it can sometimes be worth the work. Usually grant providers will want to fund specific types of ventures and may want you to show detailed evidence of what exactly the money has been spent on.

Grant money is often available for startups concerned with social innovation. For example, P@shafund gives money to technology projects providing solutions to local community issues. International organizations, such as USAID and The Rockefeller Foundation, offer grants overseas.

There are also charity funds available that are taken as an investment, such as the scheme provided by Acumen, which gives long-term debt or equity investments to startups. While these funds need to be paid back at a later date, they may be more accessible to startups than other forms of venture capital.

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