Yes, you read that title exactly. Hi, I’m Bintang and I know nothing about funding for startups and businesses. As a matter of fact, I have never started a business before in my life, at least ones that are successful. But you know what, I bet you do too, unless you won’t be reading this article. From someone who knows nothing about it, funding a startup is really tricky and extremely complicated to understand, let alone to receive. Luckily, I work at a startup and with some help from google I've learned some of the types of funding you need to grow your startups even more. Here is everything I learned about funding for startups so far.
Seed Funding, Where it all Begins
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Let’s say you have an idea of a new business and a new company. Maybe you want to make three-pointed pens, or alcoholic milk, or even a matchmaking app for pet owners. Those are all terrific ideas, but those require some amount of money to start. This money that you will eventually acquire is called later on as seed money. Usually, this would be funds that you already have prior to creating the company, or even loans from close friends and families. Typically, it is just enough for you to start creating small prototypes and do mini-sized market researches.
Seed money is also important in terms of the company’s ownership. If you have a partner or two, the percentage of ownership usually comes from the percentage in which you respectively have contributed. Be careful, though, because if the company (god forbid) fails, normally you won’t hear from the bank about that money ever again.
External Funding, Makes You Big and Strong
Your matchmaking app turns out to be a huge success amongst your close circle of friends! So you decide to take that pet-loving idea to the next level. There’s just one problem; you don’t have the financial power a.k.a. the dollar dollar bills to buy things that your business needs, like a bigger server and manpower. External funding can be the answer. This external funding comes in series, namely a, b, c and so on depending on the stage (another topic for another time). But now comes another problem; which type of external funding?
Ever saw a rare bird just hanging out on the tree branch of your yard? Angel investors are like that, with fewer feathers I suppose. They are those individuals looking to invest in businesses they see filling a specific gap in the market. Now, you might think due to the name that they will not ask for anything in return (a mistake I made in the past). But they will usually fund your business in exchange for equity.
So why the name then, you might ask? Because with angel investors, it is easier for them to lend you the money since they are not a corporation, should they be interested in your product. These people usually are wealthy and have lots of connections, probably capable to run their own businesses. However, they often choose to support young-minded people such as yourself to take the risk for them. Now, what if the money came from a corporation then?
Read also: Who’s Really Starting Startups?
Those corporations are called venture capital firms, and the people from that company would be called venture capitalists. Rather than one rich person, why not 100? That is the basic idea of these enterprises. They are a collection of people who are looking to invest in the new hip thing. The type of return that they will ask if somewhat similar to angel investors, but they differ in the amount capable to be given to you, which then relates to how involved they are in the long run. Of course, a company would give more than one person, so you do the math for the risk and opportunity of growth for your own company.
If your net snapped in two when trying to catch an angel investor, how about taking a loan instead? No, not to your mom, but perhaps to a bank, credit cards, or another business. Nowadays, the government is eager to help promising SMEs with products that potentially solve a major issue, which would make it easier for people to get loans. But even if your product does not, that doesn’t mean you’re qualified to take one. The positive side is that you don’t dilute your company’s ownership with strangers, but you do have to pay some amount of interest. Hey, if you’re confident enough to pitch your idea for a stranger to give you money, this shouldn’t be a problem.
Imagine asking your neighbor to buy your product one year in advance, in a state where your product hasn’t even been able to be made yet. You might think that’s nuts, but not according to crowdfunding. In fact, crowdfunding allows you to offer that to millions of neighbors across the globe. Kickstarter is one of the leading crowdfunding platforms where anything and everything from shoes, consumables and even smartphones gets funded every day. With this, you can give future products, special treatments, or you can even equity crowdfunding. All you have to do is create an appealing campaign to gain traction for your product, and your idea might just become reality overnight.
Did you get that? I hope that I explained the intricacies of funding for startup and business and does it justice. So dust up your business plan and ready your presentation; time to put the fun in funded!
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