3 ways early-stage companies can finance their startup
Financing a startup is one of the biggest challenges that comes with, well, starting one. You may have a brilliant idea for a product or service, but no real insight into how to get the necessary financing to start your own company based on that idea.
There’s no need to panic though, you’re definitely not alone. Financing is a common issue among many early-stage companies. While everyone wants to be the next unicorn — that only happens for a limited group of startups worldwide. For the remaining startups out there, there needs to be a clear understanding of how they can get money to fund their operation.
Unfortunately, there’s no single path to victory. Every startup’s financing journey is different. Some rely on a family member to help them out while others seek third-party investors to get involved. There are many ways in which you can finance an early-stage company, and we’re here to give you three of our personal favourites.
Get Investors Eager For Equity
To raise money for the early stages of your startup, a seed round is an excellent way to raise seed capital. This will help you get enough money to purchase equipment, rent a space, hire employees, and get your business off the ground. Get your potential investors (usually friends, family, and angel investors) excited about your business and ready to invest money in return for a piece of equity in your business.
Yes, this does mean giving up a (hopefully) small percentage of your business. However, raising seed capital is pretty integral to really kicking off your business.
Hit the Bank
A tried-and-true way to get financing for early-stage companies has always been reaching out to the bank. In many cases, it can be as simple as setting up an appointment with your preferred bank to tell them your business intentions and how much you need. That said, this method of financing can still prove to be problematic in some cases.
This is because banks are all about taking calculated risks. If you come with a broad, loose idea for a startup and can’t articulate how it will earn money — that won’t look good for your chances of landing a loan. Coming in with a clear, concise business plan and knowing how you’re going to make money is what banks want to hear. The more information you can provide about your early-stage company, the better chance you’ll have of getting a loan.
Obtaining a bank loan will be much easier if all the founders have some money to put into the business themselves. Banks see spending your own money as a sign of your serious commitment to the startup. If that’s not a possibility, look at getting a personal guarantor. This is another way to make your bank feel more secure offering you a loan.
The Power of the People
Crowdfunding has become a massive online phenomenon in recent years. People can make amazing things happen just by donating a little bit of their own money towards a cause. Whether that’s helping pay for someone’s hospital bills or helping the less fortunate — it’s revolutionized the channels in which people can support others through.
Another byproduct of crowdfunding is how it helps early-stage companies get financing. If you don’t have deep business connections but have a great product or service, share it with the people and see how they receive it.
This actually does two crucial things. First, it shows you if there’s enough of an appetite for your product and service out there on the market. Secondly, people can give you money directly through platforms like Kickstarter if they love it. While it’s not necessarily a long-term solution, it does offer financing upfront. You can also decide the monetary goal you want to reach through the campaign settings.
Hire a Virtual Finance Team
A lot of the financing options for early-stage companies hinge on bringing in third-party help, but what if there was a better way? What if you could actually bring people into your company who could specifically dedicate their time to helping your startup get financing?
That’s a big part of what we offer at Virtual CFO. We work with your startup to understand it on a deep level and help you find the financing you need. That way, you can focus on building the best product or service for your customers while we take care of the financial intricacies that may come with that. Get in touch with us today to find out more about how we can help.