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Starting your own business is perhaps one of the most rewarding endeavors you can embark upon. As rewarding as starting a business is, however, it’s also quite a stressful process. It can also prove quite daunting, especially to those who don’t have a background in business.
One of the most difficult parts of starting a new business is funding your enterprise. With over 25% of small business owners unable to fund their startups, it isn’t surprising that a lack of funds is the second most common reason why businesses fail.
Many business owners turn to fundraising to help fund their startups. This article will provide some advice on undertaking a fundraising campaign of your own and will provide some examples of good business fundraising ideas for you to use. So, if you’re interested in how to raise money for business startup projects, then do read on!
Recent Growth in the Startup Industry
For many businesses, COVID-19 restrictions spelled trouble. However, for others, millions of people suddenly working from home created new opportunities. Companies like Zoom leapt to meet the new demand opening up in the market flowing from the desire to facilitate human connection and entertainment for the homebound.
Enterprising individuals looking for ways to make money during the pandemic took the chance to start their own small companies. Since the outbreak of COVID-19, hundreds of thousands of people have registered new businesses.
Fundraising for a Startup: What Does It Mean?
Even if you have the best product idea ever or want to fill a gap in the market with an absolutely revolutionary service, you’re still not going to be able to start your business without funding. Raising money for startup businesses is one of the most difficult parts of creating your own company.
Fundraising is a popular method of raising money to start a business. A fundraising event might be a one-off activity to raise enough money to launch a small startup, or it might be an ongoing affair. With the growing popularity of the internet, it’s becoming easier and easier to get your name out there and to attract attention to your business.
4 Ways to Raise Money for Startup Businesses
In recent years, online crowdfunding has grown more and more popular, with sites like GoFundMe, Kickstarter, and Patreon gaining a lot of traction. But if you’d prefer to go the traditional route, there are a number of ways of raising funds for startup businesses that might work for you.
An obvious method of raising a lot of capital quickly is to simply acquire a loan, whether that’s a small business loan or a personal loan, or some other type of loan.
There are significant benefits to taking out a loan from a bank or lender; you get the money you need in a timely fashion, accelerate your growth and overcome cash flow difficulties. On the other hand, having to make loan repayments later on can damage your cash flow, and loan interest rates can be quite high if you don’t have a good credit score. Also, many banks are especially risk-averse and either avoid startups altogether or only fund ventures with founders with extremely good track records.
Another method is to search for investors—angel investors, venture capitalists, and so on. If your company has real potential and if you manage to demonstrate this well in a pitch, an investor might look favorably at your startup and give it a chance. Investors that provide early-stage seed funding like Aleph One Ventures will look favorably at very early-stage companies. So seed funds are worth seeking out.
The downside to this option is that investors cost you money later down the line and could potentially infringe upon your independence as well. For example, venture capitalists usually charge considerable rates of return or will seek ownership shares (equity) in your business.
If you don’t want to run the risk of indebting yourself towards anyone, you could also dip into your personal savings. “Bootstrapping”, in this fashion, might come at a greater cost, but you won’t have to worry about paying off a loan later down the line or about investors having ownership shares (equity) in your business. You may also look for co-founders willing to shoulder the bootstrapping burden with you.
4. Hosting Events
Another traditional way of raising money for business endeavors is through hosting startup fundraising events or technical community events. This could include sponsoring startup community events or open-source meetups. Yes, these events do require a fair bit of planning, but as well as helping to raise money, they also help get the name of your business out there. Making it easier to recruit your first employees or a co-founder for your startup.
Why Is It Difficult To Raise Money for Your Startup
Raising money for a startup is not always easy. If it was, then no doubt many more people would open their own companies! Here are some common problems encountered by people looking to fund a startup business.
No Verifiable Cash Flow
One of the greatest obstacles you’ll have to overcome as a new startup is having no real record of your cash flow. Knowing how to raise money from investors, without such track records can be difficult, as they use them to determine how risky a venture your startup is. If there is no data for them to draw upon, they might be hesitant to invest money in your company.
When you’re just starting out, you obviously haven’t built up much of a reputation for yourself yet, and may not have the funds to do any extensive advertising. Because of this, investors might be reluctant to fund your business, or you might find yourself with a smaller turnout than you’d like for any events you might host. Little reputation can also be related to the fact that this is your first company and you lack the positive reputation gained from a previously successful startup business or from working at a famous startup.
No Product or Services in Place
If you’re just starting your new business, you most likely don’t have any products or services in place just yet. When you’re trying to sell your company without having a tested product or service to point to, investors may be wary of funding you.
Four Fundraising Ideas for Your Startup in 2022
There are countless fundraising ideas for startup businesses for you to choose from. But to get you started thinking about what you could do to raise money for your startup, here is a shortlist of four good options in 2022, each with a short fundraising description.
Crowdfunding websites like Kickstarter, Patreon, GoFundMe, and others, have been very successful in helping hundreds of small business owners get on their feet. Such websites are very simple to use, communicating with you throughout the entire process of setting up your account and campaign page.
Online crowdfunding pages can easily be shared on your social media platform, as well as with friends and family. If your business idea is compelling, and if you manage to sell it in an engaging way on your page, then hopefully, you’ll be met with some success!
2. Go to Startup Pitch Events
Many incubators, startup accelerators, and angel investing networks host events where novice startup founders can pitch their business plans and receive feedback. Usually, a panel of investors will decide on the best pitch and hand out a smaller check to the winning founder with the promise of future funding discussions. During the lockdown, these events moved online. You can find them on Eventbrite or Meetup.com for your area.
Collaborating with other startups can be a great way to raise money and get your name out there to a wider audience. Have a look around for local startups that may want to give you some help with the fundraising process, or perhaps even make an investment of their own. Likewise, look to see if you can return the favor! It never hurts to build strong relationships with other businesses.
3. Apply to Startup Accelerators and Incubators
Around the world governments, corporations, and investors seek to drive innovation. They do this by funding programs that find resources for startups and raise funds for business startups. This includes seed capital, mentoring, and founder skill development. Two famous examples are Techstars and Y Combinator. You can look for incubators that work with startups in your market vertical. Also certain universities have innovation labs to help undergraduates foster an entrepreneurial mindset and fund companies. MIT and Harvard innovation labs are two great examples of elite programs.
4. Look for Seed Funds or Angel Funds
This can seem daunting at first, but even a first-time founder with a fantastic vision and team can attract early-stage venture funds or angel investor networks. This has become easier over time as venture scouts are aggressively seeking new opportunities to invest and this underscores why you need to get your name out there! Also, new platforms like Angellist Ventures are democratizing capital raising and therefore driving greater access to venture funding on a global basis.
Seek Out Aleph1 For Reliable Help and Advice
Hopefully, some of these suggestions have sparked a few ideas of your own. But if you still need help or advice, or if you’d like to team up with a trusted strategic tech partner and seed fund, reach out to Aleph1 today.
We have a decade of experience as technical experts in digital product development and investment. Our motivated and professional team members have helped implement new business models and products for countless startups and early-stage ventures. We have excellent relationships with companies such as SWAG, WeCan Group, and Koyfin, where our initial engagement with them has flourished into lasting partnerships.
If you want to know more about who we are and what we do, take a look at the case studies on our website, where we break down just some of the ways our services can benefit your business.
This article has taken a look at the importance of fundraising for business startups—as well as the challenges and pitfalls it inevitably involves. We’ve also given some examples of some good ways for you to fundraise for your new business in 2022 in the hopes that we can at least help you start a fundraiser of your own.
Here at Aleph1, we understand the importance of making a strong start with your business. Setting off without having enough capital to back you up can often prove disastrous.
Reach out to us today to make sure your business starts off on the right foot!
How can I raise money to start a business?
There are many different ways you can raise money for your business startup. There are more traditional approaches, such as loans or dipping into savings, as well as other options like crowdfunding, hosting events, accelerators, and more. Make sure that you go with the option that suits you best, evaluating each carefully before committing.
What are some good fundraising ideas for business startups?
Fundraising can be as simple as a crowdfunding campaign or as involved as hosting your own coffee morning or dinner party that is affiliated with a co-working space or open-source meetup. Ultimately, you know how much time and effort you will be able to invest in fundraising, so go with whatever option suits you best. However, it’s worth keeping in mind that hosting events is a good way to get your name out there into the wider community.
What is the most profitable fundraiser for a business startup?
There’s no one fundraising method that guarantees a particularly high level of profit. That being said, crowdfunding has often proved a reliable way of raising money. You can share online crowdfunding pages with a couple of clicks of your mouse and reach thousands of people in doing so. With luck, your fundraiser will pick up traction and find plenty of people willing to back your products or services.
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