Funding Your Start-Up: What Options do you Have?

People say that all you need for success in business is a great idea. Those people are wrong – you need to execute well. Not only that, you also need money. Every business needs at least some money, because it’s the energy that fuels business operation. Even a “zero-cost” business, such as selling an eBook online, still requires some money in some form.

That’s usually the biggest obstacle for any prospective entrepreneur. There are a few different ways that you can get the funds you need. In this article, I’ll talk about the legal ones.

1. Self-Funding

Well, yes, it is kind of obvious! You can work hard, save up some money and fund it all yourself. The problem with this option is that it may take you longer to accumulate the necessary cash than would other wise be the case.

2. Stepping Stones

This is another form of self-funding where you don’t go after your main business activity from the start, but complete a series of smaller activities first. As an example, you may dream of producing a movie, but it takes a lot of money to make even a cheap movie.

So you might start by writing some articles or creating a hit YouTube video. You raise a little cash and gain a little fame, then you may be able to use that to get the opportunity to write a book. Then the royalties from the book may give you the funds you need to make the movie. Step by step, from stone to stone.

3. Friends and Family

By far the most common source of funding for most small start-ups, there is a lot to be said for sourcing money from friends and family. Of course it is a huge responsibility and a lot of pressure, because these are people very close to you and it’s not like you can just walk away if things go bad.

On the other hand, friends and family are much less likely to take legal action against you if you somehow don’t manage to achieve your goal. This is really only an option if you have a large network of friends and family who can loan you small amounts, or you have a few very wealthy connections who can loan you larger amounts.

4. Venture Capital

These are people actively seeking entrepreneurs to back. It can be very tough to impress them, and they can be very demanding and sometimes aggressive. You need to weigh up the pros and cons of what they can offer and what you have to give in return.

It’s always better to go to investors who have experience as an entrepreneur and who know the path you are treading. They will have a better understanding and probably more insight than other lenders.

Reuben Singh, for example, the founder of Isher Capital, has a very open-minded and sensible approach to investment lending. It is always better to work with people who know what you are going through.

Beware of surrendering control of your business to the investor. You certainly don’t have to do that. There are been television shows that make it seem like this is normal for investors to aggressively demand a controlling share of your business venture, but in reality it’s rarely intelligent to agree to surrender more than 49% of a business.

5. Banks

But only if you have no other choice. Banks are the first option most people think of, but one of the worst. They tend to be too conservative and not all are generally entrepreneur-friendly.