While the headlines might be full of big investment deals done by venture capitalists and angel investors, the biggest percentage of new start ups are actually funded by personal loans and credit.
According to data compiled by business crowd funding site, Fundable, only 0.91 percent of startups are funded by angel investors, while only .05 percent are funded by VCs. In contrast, 57 percent of startups are funded by personal loans and credit, while 38 percent receive funding from family and friends.
The commonly accepted thinking of many people starting out is the best way to raise money is to get on Shark Tank, launch on Kickstarter or “network” with venture capital firms. Others realize that being accepted into an “accelerator” program might help them launch a business. And while all of these approaches work for a small percentage of new businesses it is really important to understand the basics of raising capital in order to identify what is going to work best for you.
The Basics of Raising Capital for a Startup
Most entrepreneurs fail not because they don’t have great ideas, but because they either can’t find adequate capital or they fail to successfully manage the capital requirements of growth.
As your business growth plans start to take shape, you will want to create and execute a capital management plan that includes a clearly defined approach for acquiring funds and your plan for deploying your capital to fund all of your product or services development; marketing and growth plans. Unless you have a clearly defined plan and a path to follow, you're going to waste precious time.
Cash is the lifeblood of business. If you run out of it and lack access to additional resources, you will find yourself out of business simply because there is not sufficient money to cover both operating costs and and growth you plan.
As the founder of a startup, you'll find that raising funds is a significant part of your efforts and, for better or worse, a major challenge. Among the different types of investors out there that you may consider are: founders, family, friends, venture capitalists, angel investors, business incubators, investment groups and crowd funding pledgers.
Ways Entrepreneurs Raise Capital
Funding fuels success in any business and your capital flow is crucial in the earlier stages of business development.
Unfortunately for many new startups, money can be scarce. Raising funds can be a laborious, frustrating challenge for owners who are trying to seed their company’s future while perfecting a product and managing operations.
There are many effective ways to find funding, raise capital, and discover seed money sources – you just simply need to know where to look and how to pitch your business to each source you are seeking to fund your business.
Over the next few posts we will review each of the ways an entrepreneur can raise capital. Just remember, there is no single best answer, but there are advantages and disadvantages to each potential solutions and it’s important to known which solution is going to work best for you.