Funding
Contents
Why Funding?
Funding creates a cushion for a start-up during its infancy to ensure that it can weather problems as it grows until it starts generating profits. It provides a start-up with the resources it needs to realize its vision.
Getting funding often correlates to the success of a start-up. More money gives them more means to achieve their goals. However, it also signals trust in the community generating additional funding and public confidence.
Types of Funding
Accelerators and Incubators
Accelerators and incubators are programs designed to help start-ups advance their business models and strategies. They do this by providing start-ups with resources, mentorship, and funding, often in exchange for equity in the company when it grows (that’s how start-up accelerators make money).
Angel Investors
Angel investors are high-value individuals who provide capital to start-ups in exchange for equity ownership or convertible debt. Most of them invest during a start-up’s early stages when other investors are not prepared to back them.
Venture Capitalists
Venture capitalists are similar to angel investors, except they are usually large firms. They make significantly larger cash investments than angel investors, but that comes with stricter criteria.
Venture capitalists typically only back start-ups with very high-growth potential and an already stellar track record, and are rarely interested in early-stage businesses.
Loans
Start-ups can also pursue more traditional forms of funding, such as loans. This option is accessible to most founders, especially with a growing number of lenders beyond traditional banks that are ready to support small businesses.
Crowdfunding
Crowdfunding is the act of raising funds through multiple people. You can do this through crowdfunding sites like GoFundMe or Kickstarter.
You set up a campaign, and then invite individuals to donate to your business. These are not necessarily professional investors, but regular people who contribute. The donation is often in exchange for some reward such as a discount or equity.
Grants
Grants are non-repayable funds or products disbursed or given by one party (grantmakers), often a government department, corporation, foundation, or trust, to a recipient, often (but not always) a non-profit entity, educational institution, business, or an individual.
What do Startups Need Funding For?
Start-ups can raise between thousands to millions of dollars in funding at different rounds.
Depending on where it is in its roadmap, this support can be allocated to various expenses.
Pre-Seed
Pre-seed funding is the earliest stage of funding. It helps a start-up get off the ground. This money can be used to conduct market research, develop a prototype, and build a minimum viable product (MVP).
Technology
Technology is a significant expense for start-ups. This includes the cost of developing a product, maintaining it, and scaling it as the business grows.
Marketing
Marketing is essential for start-ups to get the word out about their product or service. This includes the cost of advertising, public relations, and content marketing.
Operations
Operations include the day-to-day expenses of running a business. This includes rent, utilities, and salaries.