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8 Funding Sources For Startups You Should Consider

Your small startup can generate millions for you, but taking the first step is the real catch. You don’t have enough capital to launch your amazing idea, so you must look for funding sources for startups. There are many other startups, too, that are looking for financing options. Finding the right funding source depends upon the uniqueness of your idea and the product.

If your idea is based on community service, there are higher chances of getting funding. Apart from the startup’s nature, every new idea needs money and investment to make things happen.

Funding Sources For Startups

There are several funding options available for startups. Which funding source is better for your startup depends upon the startup type.

In general, we will discuss the top 8 funding sources for startups that can meet your capital requirements.

1. Bootstrapping

Bootstrapping funding source means that no external help or investment is involved, and you are managing everything on your own.

Most of the time, startup owners use their savings and other assets to initiate the startup. The cash flow is managed by the money and revenue generated from the business.

The investment and capital may not be that much as you are expecting, but you will have complete control of your company.

As no external investor is involved, you are the only owner of your company, and you get to decide what to do with any business project.

The success and failure of a startup is your responsibility. You won’t have to share chunks of business profit.

When external stakeholders and invest make contributing to your project, you get a lot of external exposure for your business.

Due to the involvement of the investors, you don’t get to enjoy the networking and collaboration with big names of the investment market.


2. Friends and Family

Raising money from your close circles like family, friends, and colleagues may be an easier way to collect funds for your startup.

This funding source for startups is more like borrowing money from your loved ones. As they already trust you, and they are more likely to invest in your idea.

Friends and family funding is easier to get, but still, the capital may be limited depending upon the financial condition of the relatives and family or friends.

You can ask for help in the near future if you face any setbacks from your startup. They have already supported you, so they might support you now too.

Most of the startups don’t meet the end goals, so your investors must be aware of the failure chances. Always describe your idea clearly so they can make the right choice by analyzing the risk factor involved.


3. Angel Investors

Angel investors are wealthy individuals who invest their money in promising startups. You just need to have a potential startup idea, and finding an angel investor is not a big issue.

They actually make investments as a business, and you will have to offer them equity in the business in exchange for their services.

As compared to the professional lenders, having angel investors for your startup funding is way better. General lenders charge higher percentages of the interest from the startups. Angel investors need to realize that you are offering something unique that can actually add value for the customers with this product or startup.


4. Business Accelerators

What is a business accelerator?

A business accelerator supports growth-oriented startups & developing companies through education, mentorship, and financing.

If your startup is stable and is able to stand on its own two feet, but needs guidance and peer support to gain strength – this is the right funding source for your startup!

Typically, accelerator programs are fixed-term, cohort-based programs that include investment opportunities, connections to high-value mentors, educational programs, and culminates in a public pitch or demo day.

While a handful of accelerators have been very successful in helping industry-leading startups — such as Stripe, Reddit, Uber, and Airbnb.

Business accelerator as a funding source for startups.
Reaching success, with the help of a business mentor.

How do business accelerators make money?

Business accelerators make money by providing the support (which we mentioned above – education, mentorship, and financing) for a small piece of the company.

In other words, the help they give to startups and developing companies is in return for equity in a startup.


5. The Bank

Funding Sources For Startups - Bank loans

The bank is the ultimate solution for all financial ups and downs.

Getting loan approval from the bank is hard in 2020 due to the increasing number of startups and new businesses still, it’s worth trying.

If you have an actionable idea that can lead to a well-established business, the bank will surely grant you money.

The terms and conditions of funding for a startup can be different. Some banks might ask for their share in the business, while some may only lend you money on normal terms.

Many banks across the globe offer loans and relief packages for small businesses.

If your local offer such assistance, you can go for it.


6. Crowdfunding

Funding Sources For Startups - Crowdfunding

If you are unable to find one funding source for your startup, you can ask for individual investors to help you.

Crowdfunding is the new trend in the business world, where several investors invest their money in startups.

There are many crowdfunding websites where you can pitch your idea.

The investors will review your idea, and if you are good enough to impress them, a large number of investors will be funding your idea.

There are different types of crowdfunding as funding sources for startups:

Equity Crowdfunding

This type of crowdfunding is the same as typical investments where different investors invest in your idea in return for stakes in your business.

Reward-based Crowdfunding

This is a creative type of crowdfunding where you get to build strong relationships with your customers.

You can offer then special discounts on your product if they invest in your idea or they can have early access to your products. You need to be creative to make this funding source work for your startup idea.

Always keep in mind that you should only claim realistic rewards. If you make claims that you cannot fulfill, that might hurt your start or brand. You can offer them small non-financial incentives.

Debt-based Crowdfunding

Like borrowing money from any bank, you ask for a loan from different investors. You agree with a specific amount of time, and after that, you will have to pay back the borrowed money.

As compared to borrowing money from the bank, debt-based crowdfunding is an easier yet effective funding source for startups.


7. Grants

Funding Sources For Startups - Small business grants

There are special grants available in every region to fund new startups and ideas.

Most of the time, businesses don’t have to pay back the grant until they have achieved some specific financial goals. Nearly all of the grants for startups are released for long term contracts.

The money obtained from grants may not be enough to support your complete startup, yet you can use that additional amount to boost the startup.

Check your local authorities of grant resources to see if some kind of grant is available for your idea of the business.


8. Venture Capitalist

This funding source for the startup is closely related to the idea of grants, and you won’t have to return the money.

The investors will ask for stakes in your business, and they will also have their influence in the decision-making process of your startup.

If you want full control of your business and want to enjoy the freedom of decision making, this funding source is not the right option for your startup or business.


Conclusion

You must be aware of the fact that getting funds and capital for your startup is not going to be easy.

No one would ever like to invest their hard-earned money in some idea that holds no future.

So, work on your idea and the startup pitch so that you can attract more and more investors for your startup.

If you know some other funding sources for startups – help out your fellow entrepreneur friends and leave a comment below!


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Written by Usama Arbakan

I am a big fan of the digitization of businesses and have been helping bloggers and startup owners with business marketing for the last 4 years. My educational background includes Bachelor's in Commuter Science Degree and several diplomas in marketing and writing. Currently, a part-time blog writer at Ad Specto.

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