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How to Get Funding for a Startup Business
How to Get Funding for a Startup Business
Your complete guide to startup funding: What it is, how to get it, and where to find free resources like SOLIDWORKS for Startups.
Your complete guide to startup funding: What it is, how to get it, and where to find free resources like SOLIDWORKS for Startups.
What Are the Phases of Startup Funding?
The sources of startup funding that are right for your business often depend on what phase you’re in. Before we dive into your options, let’s review the phases of a startup.
Pre-Seed and Seed Funding: Planting the First Financial Seeds
The pre-seed phase begins as soon as you think of your product idea. Once you’re serious about starting a business, you might ask friends, family, and other supporters for funds, plus contribute some of your own savings or borrow against a credit card. That’s pre-seed funding.
Seed funding is typically the first “official” early-stage startup funding, where you’ll get investors involved. It helps you make a business plan, do research, and develop and launch your product.
Series A, B, C: Fueling Growth and Expansion
As your startup grows, you’ll go through more rounds known as series funding. It’s typically broken up into series A, B, and C, but there can be more rounds. When they happen depends on things like your growth speed, your growth potential, and your market size.
For each round, you’ll offer potential shares in your company to lenders like venture capitalists in exchange for funding, known as equity funding. You’ll also need to build and present a business plan for long-term profit.
IPO: Going Public and Beyond
An initial public offering (IPO) occurs when a private company offers its shares to the public for the first time, becoming publicly traded. It’s an important milestone that means you can raise more capital, attract more investment, and boost your audience. Once your startup makes an IPO, you’re officially not a startup anymore!
Go from seed to series C with our free CAD software for startups.
How to Get Startup Funding: Sources and Opportunities
You know you have a winning idea. But navigating the sources of startup funding for a small business can be complex. We’ll break it down for you, so you can capitalize on the right opportunities at the right time.
Bootstrapping: The Foundation of Self-Funding
Bootstrapping is an early-stage startup funding option that typically refers to using your own money to invest in your new business. You can use your personal savings or credit cards in your name. It can also include asking close friends and family for funding, as well as reinvesting your early revenue back into the business.
Crowdfunding: Community Support for Early Stages
Crowdfunding involves using an online platform to ask for donations from a large group of people. You just create a page and promote it through social media and email. You might offer to send donors a sneak peek or first round of your product in exchange. It’s a great way to not only get early startup funding, but also generate interest in your product.
Incubators and Accelerators: Guided Path to Growth
Many small businesses, especially in the tech industry, start in an incubator or accelerator. These are groups that offer startup founders mentorship; resources like office space, software, and hardware; networking opportunities; and funding, typically in the tens of thousands but up to six figures. Incubators and accelerators are valuable resources for startups who can get approved to join them.
Angel Investors: Early-Stage Financial Wings
If you want to branch out beyond your network, angel investors are a great startup funding source in the seed and series stages. These are individuals who provide funding—typically in the thousands but up to a million dollars—in exchange for equity, without having to consult a corporate investment firm. This agility can be a big advantage in the early stages.
Venture Capital: Accelerating Growth
Venture capital (VC) is an important source of startup funding for businesses that are ready to scale. Venture capital is held by corporate funds that pool money from various accredited investors and choose where to invest it. It’s a type of equity funding, so you’ll provide a stake in your company in exchange for the funds. VC firms often end up with a lot of control over a company, but they can invest from hundreds of thousands up to 10 million dollars, so many startups think it’s worth it.
Government Grants: Public Sector Support
Grants are an excellent way to fund a startup because you won’t need to give away equity, they don’t need to be repaid, and they’re available for startups in many different stages of growth. Most grants are offered for specific types of businesses or business owners, so you’ll need to find options that apply to you. Funding resources like the Small Business Administration (SBA) and the website Grants.gov are good places to start.
Loans: Traditional Small Business Startup Funding
Today’s entrepreneurs have more startup funding options than ever— but don’t forget the tried-and-true financing provided by traditional business loans. The SBA offers various programs, including microloans of up to $50,000. Borrowers with good credit can also take out personal business loans. If your credit isn’t as strong, consider microlenders, which provide loans between $5,000 and $50,000 with flexible repayment terms.
Get Your Startup Started: Tips for Funding and More
With so many startup funding opportunities, it can be hard to know where to start. Use these tips to make the most of your options.
Craft a Winning Business Plan
Unlocking startup funding means convincing investors they’re making a smart choice. Prepare a compelling pitch deck for angel investors and VC firms with an emphasis on your vision, what makes your product unique, and your potential for growth. For banks, you’ll need a business plan, which is a more detailed document explaining your management team’s credentials, business model, financials, and manufacturing processes.
Learn About Financial Planning
Before you can determine which sources of startup funding are right for you, you’ll need to know where you stand financially. Every entrepreneur should understand basic financial terms like interest rates, debt-to-equity ratio, cash flow, and profit margins. Learn how to assess your finances using tax returns, bank statements, and revenue projections. The more you know about your own finances, the better you can convince investors to fund your startup.
Create a Legal Strategy
Your finances aren’t the only thing you need to protect. Every startup founder also needs to think about protecting their intellectual property (IP). First identify your IP—this could be copyrights, trademarks, patents, or trade secrets— and create processes to keep it secure. Clear corporate governance practices will help you maintain accurate records, while nondisclosure agreements (NDAs) help maintain confidentiality when you must share IP with employees, contractors, and investors.
Network, Network, Network
The best startup business funding opportunities come from people you know. That means the bigger your network, the better the opportunities you’ll get. Expand your network by attending conferences, trade shows, networking events, and meetups created for your industry, niche, or target market. Get online and engage with your community through LinkedIn and other social media sites. And always have a perfected elevator pitch ready to go.
Look for Free Resources
In addition to startup funding, smart entrepreneurs get free stuff whenever they can. That’s why we created a comprehensive list of free resources and tools for startups, including the following funding resources:
● Fundera is a free startup tool that matches you with the right lenders and helps you compare loan options. Just answer a few simple questions.
● Grants.gov lets you search for small business grants by keyword and category. Grants are an excellent funding option because they don’t need to be paid back.
● Wefunder is one of the largest equity crowdfunding sites. It connects you with investors who provide capital in exchange for a future equity stake.
● StartEngine is another leading equity crowdfunding platform. The approval process can be complex, but with 1.7 million potential investors, it’s worth it.
● Fundable is a crowdfunding site that lets you choose between rewards, like providing a copy of the product, or equity in return for an investment.
● Foundersuite is a fundraising management platform where you can find investor information, contact investors, track your interactions, and stay organized.
We also offer our industry-leading CAD software free to qualifying startups. Check out the SOLIDWORKS for Startups Program to learn more.
FAQs About Startup Funding
Startups get funding in a variety of ways, including angel investors, venture capital, grants, and traditional business loans. You can even fund your startup with your own cash, known as bootstrapping, by asking family and friends, or through online crowdfunding websites.
The best startup funding options for your business depend on its size, industry, product, stage of growth, and financial stability, as well as how much money you need. Early-stage startup funding often relies on bootstrapping, crowdfunding, angel investors, and small business loans, while later stages bring in venture capital and larger grants and loans
Business startup funding most commonly comes from personal accounts or friends and family. These types of startup funding are the easiest to get. You don’t have to give up equity, and the repayment terms are as flexible as you’d like. Small business loans and microloans are also very popular.