Raising capital is one of the most challenging hurdles first-time entrepreneurs will face on their entrepreneurial journey. Without capital, it is impossible to turn even the greatest of ideas into a profitable enterprise.
While successfully raising sufficient capital doesn’t guarantee that a startup will be successful as 75% of VC-funded startups fail, it does make the odds of succeeding better.
Here are some of the major ways to raise the capital you need to grow your startup.
In September 2021, the news of Intuit purchasing MailChimp for a staggering $12 billion broke the internet. Why? Mailchimp never raised a dime from external investors in its 21 years of existence leading to the purchase.
While using your personal finances and savings to grow your business is risky and often characterized by slow, painful growth, especially for founders with limited personal resources, it is a path that has proven to be rewarding in the long run.
Bootstrapping allows founders to own their startups completely and grow at their own pace. Some other successful bootstrapped companies that went on to become worth over $500 million include Shopify, Lynda, SurveyMonkey, etc.
2. Angel Investors
Angel investors are rich individuals who invest in business ideas that have potential. They could be family, friends, exited founders, successful business people, etc.
With Angel investors, you get away with having just a great idea depending on your relationship with them and often only lose a small stake in your business.
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3. Venture Capital
Regarded as the creme de la creme of funding in the startup world when it comes to raising capital, venture capitalists invest in startups with long-term growth potential.
Venture capitalists are the first choice for most startup founders as not only do they tend to invest generously, but raising capital via this means comes with exposure which is necessary for increasing revenue and attracting the right talent among many others.
This is, however, one of the toughest and most competitive routes to securing funding, especially for first-time founders without industry experience and relationships. In fact, only 0.05% of businesses actually get funded by VCs.
Grants are sums offered by governments, private firms, and individuals for purposes such as job creation, poverty alleviation, encouraging entrepreneurship, making eco-friendly changes, etc.
While securing grants can be a competitive and time-consuming process, it provides startups with the boost needed to keep operating while exploring other means of funding.
From Occulus to Glowforge to Flowhive, crowdfunding has proven to be another reliable fundraising avenue for startups over the years. In September 2021 alone, there were about 5 startups that successfully raised over $1 miilion via crowdfunding.
Crowdfunding allows entrepreneurs to leverage the power of the network and community to pool capital from a large group of people using the various crowdfunding site available. All the entrepreneur needs are proof of concept and a perfect pitch.
While being one of the quickest ways to raise capital, crowdfunding is highly competitive.
6. Debt Financing
Loans from banks and other credible financial institutions can provide startups with the capital needed to fund growth and expansion with no equity dilution.
This is great for startups who already have monthly recurring revenue as lenders will look to ensure the startup has the means to pay back the money they receive.
In most cases, startups looking to walk this route will need a business plan, profit and loss statement, cash flow statement, and balance sheet to acquire capital from lenders.
7. Incubators and Accelerators
Startup accelerators help startups with growth potential to grow by providing them with the education, mentorship, and financing they need.
Startups are put through an intense process for a fixed period of time and are armed with the necessary resources needed to progress. Accelerators connect startups with other founders, mentors, investors, and talent for their teams.