Crowdfunding, Funding

6 Types of Funding Every Startup Should Know About

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It might be complicated to determine which approach is ideal for your startup when it comes to raising cash. You’ll need money to set up the machines in order to bring your fantastic or new idea into reality, whether you have a revolutionary concept to disrupt the market or a commendable one to improve the current. 

Fortunately, there are more than one ways to get funding for your startup. Here are seven types of funding you should consider:

Bootstrapping

Bootstrapping means starting your business without the aid of external funds. You’re essentially getting started with your own money, like with your savings, and you’re building your company while monitoring expenses using the cash flow generated by your firm. 

The advantage of bootstrapping is that you retain control of your firm. You don’t have to give away a stake in your firm or meet external expectations since you aren’t relying on any outside investors. You are free to choose whatever route you want for your company, and the ultimate success of your business depends on you and the individuals you employ. 

On the other hand, bootstrapping will turn out to be a difficult way of getting your startup off the ground. Thus, you should keep in mind that it might take longer for you to get going and eventually have a successful business.

Friends & Family 

If you don’t want to or can’t bootstrap, then another option for funding is through friends and family. It means that the people who are closest to you will be your initial equity partners in business.

They’re more likely than other investors because they know your abilities and track record better than anyone else does. They’re also likely to have more trust in your ability to succeed and be emotionally supportive, which is essential when starting a business. 

The downside, however, of relying on friends and family for investment is that it can create tension if the company doesn’t do well or if there’s a conflict among the shareholders. Furthermore, you might find it difficult to get them to invest more money as your startup grows.

Angel Investors 

An angel investor is somebody who provides early-stage funding for a startup in exchange for convertible debt or equity in the company. They usually have some prior experience as an entrepreneur and are typically wealthy individuals who want to help young companies grow. 

The advantage of seeking out angel investors is that your equity stake in the startup won’t be diluted as much by their investment. They’re more likely to provide funding if you have a solid business plan and they see potential for growth at some point down the road. 

The downside, however, of seeking out angel investors is that they might take equity stakes in your business instead of providing convertible debt or straight equity. This can cause problems if you want to issue more equity to other equity holders down the road due to an increase in value.

Read More: Your Guide to Investor Outreach for Startup Fundraising

Venture Capitalists 

A venture capitalist (VC) invests money in a startup in exchange for equity, and they typically have more experience than angel investors. VCs usually invest larger sums of money compared to angels because there’s a greater risk associated with funding early-stage ventures as the business has yet to develop revenue streams or an established track record that could help them generate returns on their investments.

VCs often look for businesses that can scale rapidly, so if your startup doesn’t fit that mold then they might not be interested. Additionally, VCs will want to see a well-developed business plan and a management team with a lot of experience in the industry you’re trying to disrupt.

The advantage of having a VC as an equity partner is that they can provide you with a lot of resources and contacts that can be helpful in growing your business. They also have the ability to help you expand into new markets or get your product to market faster. 

The downside, however, is that they often want to take an active role in how your company is run and will expect a return on their investment. 

Read More: Why Raising Too Much Money May Not Be Good for Your Startup

Seed Funds 

A seed fund is a type of VC that typically invests smaller sums of money with companies still in their infancy stages. They normally invest between $250,000 – $750,000 per company depending on the stage of the business. 

Seed funds are a great option for startups that don’t have a lot of traction yet or businesses that are in a very competitive market. They can also be helpful in getting you over the “valley of death” – the period when your startup has outgrown its initial funding but hasn’t generated enough revenue to secure more equity funding. Seed funds are usually smaller than traditional VCs, so they might not have the resources necessary to help you scale your business or provide all of the contacts that a larger VC can offer. 

Read More: How to Know Which Funding Round Your Startup Needs to Raise and When

The advantage of having a seed fund as an equity partner is that it provides less risk for both parties because their investment is typically smaller. They’re also more likely to provide follow-on funding as your startup grows. The downside is that it can be difficult to find a seed fund that’s interested in your company, and they might not have the resources necessary to help you grow your business.

Equity Crowdfunding 

Equity crowdfunding is a relatively new way of funding startups in which individuals can invest small sums of money in exchange for equity in the company. 

This has become possible due to recent changes in securities laws that have made it easier for startups to raise money from a large number of investors. 

The advantage of equity crowdfunding is that you can raise equity without giving up any control of your company or equity stakes. With the growing number of equity crowdfunding platforms — like WeFunder, StartEngine, Kickstarter, Republic, and others — its getting easier to setup an equity crowdfunding campaign. 

Interested in launching a new equity crowdfunding campaign or want to boost results of an existing one? KiwiTech offers equity crowdfunding services to early-stage startups. Learn more about our equity crowdfunding services for startups.


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