Being an entrepreneur is on the mind of almost every enterprising individual in today’s world. Everyone one of us might have heard or come across a success story of someone we know or some old acquaintance that has made it big with their ideas. And if we do not know someone, then we surely must have come across an entrepreneur that had an idea similar to our own and has acted upon it and turned their life around for the better. What most of us see is the success of people we know or the ideas that we’ve also had, but what most of us fail to see is the struggle that goes behind turning those dreams and ideas into realities and becoming an entrepreneur. The most important thing that we fail to see is the fact that while having a great idea for a business venture or model is all well and good, the most important aspect of turning that idea into a viable venture is funding. And in this article, we will tell you all about how to raise money for a startup business.
Why Raising Money For Your Venture Is Important
Having a great business idea is only the beginning of being an entrepreneur. And what most entrepreneurs worth their salt understand is that if their business ideas have strong fundamentals such as the right management team, market conditions, operations, demand, etc., they would quickly secure funding for their venture. This is where most entrepreneurs are wrong and raising money for your business is like going to war with people trying to bring you down. There are a lot of challenges that you will have to encounter on your path to raising funds for your business ideas. These challenges to raising money can be exhilarating as well as exciting but play a very important role in shaping the future of your venture. And no matter how much you wish to avoid them as an entrepreneur, these challenges are inbuilt in the journey to being successful. The best way to prepare for them and tackle them is to know about them and formulate a detailed plan on how to navigate through these challenges successfully and raise money for your cause.
Not just raising money for your cause, but what is also important is the fact that you raise money in a manner that is the best suited to your business needs and demands. Just plainly following what the money dictates will lead many businesses and entrepreneurs to get into poorly structured deals that spell doom for them and their ideas in the long run. Thus, not only are there challenges to raising money, but the real challenge also lies in figuring out the right way to raise money quickly without compromising on any of your ideals, ethics, visions, etc. Even the best-laid business plans can fall flat if there is insufficient funding or if the funding is sufficient but is poorly structured or executed. Therefore, as an entrepreneur, your first priority should be trying to figure out the right way for you to raise money quickly for your cause.
Now, this might be a daunting task for a budding entrepreneur, but there is no such thing as free money in this world and as an entrepreneur, you should not be afraid to seek the funds that you need. In order to raise money, you will have to go through many hoops and negotiate with a lot of people that might have expertise in that area, you can still come up with a clear pathway to secure the funds that you seek. There are many dark sides to fundraising as well and before getting into how to effectively raise money for your cause, let us understand the downsides of the fundraising process.
Downsides Of The Fundraising Process
Of the many issues and downsides that plague the process of raising money, some of the major ones are listed down below:
Raising Money Costs A Lot
The age-old phrase “it takes money to make money” is very apt when it comes to fundraising campaigns. But when you are an entrepreneur raising money for your cause, you will spend not just your money but also dedicate a majority of your time and energy trying to raise funds. While the lure of money that would be raised for your business can be huge, the amount of time, effort, energy, dedication, etc. required to raise these funds is not accounted for most of the time. Most business owners and managers spend the majority of their time trying to raise money and drop nearly everything else that they might have to do.
The fundraising process is time taking and can drag for months as negotiations with the investors continue and they perform their due diligence before investing in your business. In many cases, it has been observed that getting a “Yes” from investors can take anywhere up to 6 months, but getting a “No” from an investor can take up to a year of your time. Many up-and-coming businesses and companies go broke in their early stages only while they try to raise money for their next round of growth or expansion.
Even if the search for new capital proves to be a successful one, the out-of-pocket expenses can be very high. Some of these costs can include fees to lawyers, underwriters, accountants, office administration, maintenance, etc. These expenses while trying to get funding for your cause can prove to be a strain on the business and act as a major hindrance to carrying out a successful fundraising process.
Loss Of Privacy
The most often neglected part of fundraising efforts is how tough it can be convincing people to part away with their money. As a part of your fundraising process, you will have to tell all the details of your business, your life, aspirations, etc. to hundreds of potential donors. Not just that, you will have to tell them about what the ownership structure of your company is, what your compensation is, the company’s marketing/competitive strategies, financial statements for the company as well as personal financial statements.
These are some of the most sensitive and well-guarded information about any individual or a business and revealing them requires a certain level of vulnerability and requires confidentiality as well as a guarantee of no inadvertent leakages. There can also be some investors that might reject your idea and then use it for their own business proposition or with your competition. This is one of the biggest risks in the entrepreneurial journey. Thus, this lack of privacy, secrecy, and need for vulnerability can act as a big hindrance when trying to raise funds.
The need for securing funding is important but what is more important is who you are pitching your ideas and plans to and whether they can be trusted with your ideas even if they do not wish to invest in them. It is paramount that you are giving the information to the right people and minimizing the risks of it falling into wrong hands. Thus, it is as important for you to perform due diligence before reaching out to an investor as it would be for the investor to look into your business.
Seeking Correct Expert Advice
A lot of entrepreneurs might not be aware of the ways to raise money, or whom to reach out to in order to raise money. This is where experts such as financial advisers etc. come in. On top of the source, financial advisors can also help a business decide the manner in which they wish to raise funds, i.e. through debt or equity. This is important because each type of fundraising idea has its own advantage and disadvantage and it depends on your business model on what style suits you the best.
Thus, it becomes of utmost importance that you take the advice of the best financial advisors out there who value your business at the optimum level and can navigate the venture capital market, and angel investors that are perfectly suited for a startup venture at your level of growth. This is because while the financial advisors might be the ones calling the shots or giving fundraising ideas to the entrepreneurs, it is the entrepreneurs that have to live with the choices they make and find the right fit for investors and the type of investment that can make or break a business.
Not All Money Is The Same
As a new business seeking to raise money, you might think that money is simply money and you would take it from any source possible. But that is far from the truth and in fact, all money is not the same. When you have managed to successfully pitch your business ideas to investors and have got the required funding, it is important to look at various factors when it comes to your investor. Some of the factors that you should be looking at in your investor are:
- Investor’s experience in the relevant industry: The experience of the investor would come in handy as you navigate through your industry and try to bring in more money for your cause in the future.
- Investors’ reputation in the market: One of the often neglected aspects, when a new business or start-up starts raising money, is the reputation of their investor. An investor with a good reputation in the market might automatically attract more money for your cause as well as increase your future fundraising potential. On the other hand, an investor with a bad reputation might hamper the chances of new investors joining your venture in the future.
- Investor’s Contacts in the supply chain: If are a new business and are just starting out, the chances are that you need to make a space for yourself in the supply chain of whatever product it is that you are selling. An investor that has the right contacts in the field will be a blessing as they would make the terrain easier for you.
- Investor’s timeline and availability: While raising money for startups, the timing of receiving the funding is as important as receiving the funds. Even the best fundraising ideas are worth nothing if they do not generate the funds required by you at the right time. Moreover, in your startup journey, you will come across instances when the funds are needed immediately to keep the company afloat. Thus, the investor’s timeline and availability of funds raised are very crucial to making your business successful.
Now before we get into the best and easy fundraising ideas out there, it is also important that we understand what is the kind of funding that is required by your business.
Type Of Fundraising Goals
As a startup, it is very important to understand what kind of fundraising idea is best suited for your business and at what stage you require funding for your venture. Depending on this, you can make the choice about what the best fundraising idea is for your business. To understand this better, you need to understand ABC Fundraising.
What Is ABC Fundraising
This is nothing but a way of understanding what stage of funding is required by your business. It is usually done for startups that are growing over a period of time and require corporate sponsorships, recurring donors, etc. There are many startups that require funding from the beginning as well as in the later stages of their growth. The later stages when funding is required are called the A, B, and C stages of fundraising, whereas the fundraising required at the beginning is called seed funding. During each stage of fundraising, the fundraising goals are different and hence requires a new valuation of the company every time.
Now that we are well aware of the important things that one should keep in mind while trying to raise money for your startup or for your cause. Let us now get into some of the best fundraising ideas that have over time proven to be successful and resulted in getting funds raised for businesses and start raising money for your startup.
Best And Easy Fundraising Ideas
As you might have already learned in your startup journey, or heard from first-hand accounts, etc. that raising money is something that an entrepreneur should start doing from the early stages of their startup. It is because getting the fundraising idea right is the key to taking your business to new heights. And in case you can not figure out the right fundraising ideas for your business, no matter how great your idea is, the chances are that it would be difficult to make it successful. Therefore, this section will give you not only the best but the easiest fundraising ideas that have been tried and tested in the field and have proven to be a sure-shot way to raise money.
So, without further ado, let us dive in.
1. Bootstrapping
For a first-time entrepreneur, getting funding is one of the biggest pressure points when it comes to starting their own business and growing it. This is because they do not have a proven track record to show to their prospective investors, donors, etc. Thus, as a first-time entrepreneur, the best way to raise money for your cause is to go for Self-Funding or Personal Fundraising. This is also known as Bootstrapping and has proven to be a very effective fundraising idea. As an entrepreneur, you can invest from your own savings to get your business up and running. This is one of the easy fundraising ideas as it does not require the lengthy process of finding an investor, or the formalities that go along with it. Moreover, what makes bootstrapping(personal fundraising) a great fundraising idea is the fact that it does not have a high cost of raising money, unlike other fundraising ideas. This personal fundraising is usually your first round of funding and it has many advantages as mentioned above.
Personal fundraising ties you up to your business as your own money is on the line along with your time and dedication. Once you get your business up and running through personal fundraising, and then reach out to potential investors at later stages, it would give them an idea of how prudent and successful you have been with your own money.
While personal fundraising is one of the favorite fundraising ideas amongst entrepreneurs, it is only viable when the initial funding requirement is small and only for businesses or startups that do not have huge fundraising goals from day one. Personal fundraising or bootstrapping has become the go-to method for nearly 90 percent of startups to raise money and has proven to be an effective method.
2. Crowdfunding Campaign
A crowdfunding campaign is a relatively newer form of fundraising idea but it has proven to be hugely successful for a long list of startups and businesses. Think of a crowdfunding campaign as taking a loan, pre-order, contribution, or investment from a large number of people at the same time instead of just one or two investors. Crowdfunding can be done through various methods, some of which can be:
- Using Crowdfunding Platforms: Various crowdfunding platforms have come up in recent years and have become the best option for online fundraising. An entrepreneur can put up their detailed business plan along with goals, funding requirements, etc. on a crowdfunding platform and the platform will share it among its community members. The members that are interested can donate money to your cause. These crowdfunding platforms are like virtual fundraising events and have an online donation form as well for people that are interested. Not just community members, these online fundraising platforms also attract a lot of nonprofit organizations and people from social media that might be interested in funding a startup. A few of the popular fundraising platforms are GoFundMe, Kickstarter, Rockethub, DreamFunded, Donorbox, etc. The fundraising platform allows you to run an online fundraiser for very low to minimal fees and help you reach your fundraising goals.
- Organizing Online Fundraising Events: Entrepreneurs can also raise money for their startups by organizing fundraising events. The fundraising event can be a virtual event or an in-person event as well. In an online fundraising event, you can invite community members to attend and pitch your ideas, business plan, etc. to them and then direct them to a donation page where they can choose to donate to your venture or become recurring donors or investors. The online fundraising solution has become very popular, especially since the pandemic, and has been very successful.
- Organize Offline Fundraising Events: Another popular way to raise money is to organize a perfect fundraising event offline. You can choose to organize it anywhere, from a local restaurant, local coffee shop, local bowling alley, or any local business that can be used to host peer-to-peer fundraising events. When you host fundraising events and reach out to local business owners, members of your community, etc. the chances of you being able to raise money increase manifold.
Crowdfunding has many advantages such as getting money raised through multiple sources at the same time as well as raising awareness about your business or products. Fundraising efforts through this method put power into the hands of the common people from the local community as well as people across the globe and take it away from big business owners, venture capitalists, investors, etc. If you start raising money through personal fundraising or through an offline/online fundraiser and make your business venture successful, the chances of a big investor trusting you and joining you for future expansion are increased.
3. Family Members and Friends
One of the often most sought-after sources to raise money is friends and family. Reaching out to family members and friends and pitching your business ideas to them, providing them with details of your plans, etc. can be seen as one of the sure-shot ways to raise money. One of the advantages of raising money through friends and family members is that they can give you low-interest or interest-free funds. Moreover, you do not need to establish trust with them from scratch, and thus reaching out to friends and family members is an easy fundraising idea to turn your startup venture into a huge business.
4. Angel Investors
When one talks about fundraising ideas, angel investors are the ones who come to mind automatically. But what are angel investors? In simple words, angel investors are individuals with surplus cash and a keen interest in investing in new and upcoming businesses. These could be board members of existing business houses or owners of businesses etc. Almost every company that we see today, starting from Microsoft, Google, Yahoo, etc. has at some point sought to raise money through angel investors. This form of raising funds usually happens at the early stages of a company and the angel investors usually ask for higher equity in the company for a small amount of investment as compared to venture capitalists. The angel investors ask for higher equity because the risk they are taking is higher. So, if you are looking for a fundraising idea that would help kickstart your startup, then seeking out an angel investor might be the right thing for you.
5. Venture Capitalists
If you are trying to get the money raised through venture capitalists, the chances are that your startup has already started generating interest and is proving to be profitable. Venture capitalists are simply professionally managed funds whose primary purpose is to invest in companies that have huge potential. These venture capitalists invest in return for equity and exit the business if there is an acquisition or the IPO is published for that business. Raising money through venture capitalists is one of the favorite fundraising ideas among startups as venture capitalists not only provide funds, they also bring in their expertise, and mentorship, and help businesses with their long-term sustainability and scalability issues. One of the major downsides of using venture capitalists as a fundraising idea is that they seek to recover their investments in a short span of time ranging from three to five years in most cases. Also, you’re more likely to be able to raise funds through venture capitalists if you have an already profitable business that has a good team of people behind it and has found its feet in the market. Some of the most popular venture capitalists in the USA to reach out to in order to raise funds are Benchmark, Baseline Ventures, Unusual Ventures, etc.
6. Accelerators or Incubators
If you are a new startup venture and looking for the best fundraising ideas for yourself. Then seeking out Accelerators or Incubators is the best fundraising idea for you. Accelerators or incubators are programs specially designed for different industries and support early-stage companies. These accelerators and incubators not only bring in more money to the businesses, but also provide them with mentorships and help in operations, marketing, and other processes. As a startup, you can choose to enter any of these programs and work with them for a fixed period of time and grow your brand in the field.
But getting accepted to these accelerators and incubator programs is very tough and requires the founders to do a lot of due diligence and preparations including sending out fundraising letters, proposals, etc. Before entering an accelerator or an incubator, it is important that you see whether you’d be a good fit for the program or not, as they are very rigorous and would require a lot of your time, energy, and funds if your startup gets selected. Companies such as Dropbox and Airbnb started with the help of an accelerator, Y-Combinator.
7. Bank Loans
One of the oldest and most great fundraising ideas is applying for a bank loan for your startup business. A bank can provide two types of financing for your business. One can be a working capital loan and the other method is funding. A working capital loan is a loan given by a bank to a business in order to run one complete cycle of revenue-generating operations. Securing funding from a bank on the other hand is like seeking funding from other investors. It might involve you writing a fundraising letter to the bank, sharing business plans, company valuation, future prospects, etc. All this information would be needed by the bank to sanction a loan for your startup.
8. Peer-To-Peer Fundraising
Peer-to-peer fundraising ideas and technology have grown as a financial instrument in recent years. In peer-to-peer fundraising, people can raise money from one another without going through a bank or a financial institution. Peer-to-peer fundraising or lending happens through websites that are designed specifically for that purpose only. The interest rates and terms and conditions required to be fulfilled to raise money are set by the platform and have to be agreed upon by both the parties involved. The lenders in such platforms are individuals that have a higher risk-taking potential in return for more money. The borrowers can be someone that wishes to get access to a better fundraising platform than banks or financial institutions and without having to do with the hassles that come along with them. While it is a great fundraising idea for new startups, lenders should understand that the default rates for loans taken under peer-to-peer fundraising are much higher than under conventional fundraising or loans.
Conclusion
Startups are the best way to make your dreams come true and give wings to all your imaginations and dreams of financial independence. Earlier, it was very tough for someone to find the best fundraising ideas for their businesses or find corporate sponsorships for themselves. But lately, the business environment is such that if you manage to raise awareness about your product or business through a community event, local artists, social media, etc. the chances are that you will be able to attract local businesses very easily to your venture and get a chance to pitch your idea to them. When running a startup business that has already made a name and space for itself, you can always raise money by running an online campaign through social media, direct mail campaign, or an in-person event, branded donation page, etc. It depends upon you and the stage that your business is in to decide what are the best fundraising ideas for your business venture.