The term entrepreneurship has almost lost significance in the current society. The reason why this is the case is that there are so many entrepreneurs in the globe currently. So much that more people are looking towards creating unique enterprises. The best way to achieve this is by opening a startup company.
A startup company is a company or a project that is started by an entrepreneur with the intention of growing it into a scalable business. The main differentiating feature between regular businesses and startup companies is the fact that startups are intended to grow and get registered. Starting such a company requires a lot of initial capital. Therefore, business finance can be a source of headaches for entrepreneurs. In this post, we discuss methods of raising capital for a startup.
Methods of Raising Money for Startup Companies
There are several methods through which businessmen can raise capital. However, for startups, the main methods are crowdfunding and angel investing.
Crowdfunding works in such a way that members of the public provide finances for your business or project from their personal accounts. If you are looking towards using this method, you first need to introduce your idea to a group of people. The idea is posted on a known crowdfunding site. The public decides whether or not to give you the funding and how much they deem fit. Depending on the crowdfunding site that you choose, you may need to entice the public to give you money by offering a reward. Most businesses offer the product they intend to produce as a reward.
Angel investors are entrepreneurs with successful businesses who choose to invest some of their money into startup companies. Angel investors normally put a large sum of money, mostly enough to take the business off the ground. In return, if the startup succeeds, the investor gets a portion of the profits, depending on the amount invested and the initial agreement. On the other hand, if the business fails, all the money is lost. Because of the high amount of risk involved, angel investors are very keen on the projects or companies in which they choose to invest. So, where do you meet an angel investor? There are several networks like Golden Seeds that bring entrepreneurs and investors together. In such a network, entrepreneurs seek out investors and sell their business idea to them.
CrowdfundingVs. Angel Investing; Which is Better?
Benefits of Crowdfunding
• One of the benefits of crowdfunding is that you can maintain full ownership of your business. Therefore, if you succeed, you do not have to share your profits with investors.
• Crowdfunding can also serve as a marketing tool for your business. This is because it helps to get the message out about your product and is an easy way to reach the crowds.
• You can also use crowdfunding as a proof of concept. You have to show investors and convince them that your business is applicable.
• In crowdfunding, you also have complete control of your business. This means that the decisions you make will not be influenced by the financiers.
• Crowdfunding is also among the easiest methods of seeking business finance.
Benefits of Angel Investing
• First, the money given by angel investors is not a debt. This means that you do not have to pay it back. However, the investor becomes part-owner of your company hence is entitled to a percentage of the profits.
• Also, angel investors are more fearless when it comes to risk-taking because they have been in the field for a while. This may not be the case in other methods of funding.
• Angel investors are known to take an active part in the running of the business. This helps to improve the chances of success in the business.
• Most importantly, angel investors are more trustworthy when it comes to fulfilling financial promises. If you manage to sell your idea to an angel investor, you are more likely to start production sooner because these investors normally have the money ready to go.
Which of the Two is Better?
Both crowdfunding and angel investing have advantages and disadvantages. Some people may find crowdfunding better while others may lean towards the alternative option. Regardless, the two are both impeccable business financing methods. Before you decide on one, consider both the pros and cons of both.
Other modes of business financing include;
• Asking for help from family and friends
• Taking loans from financial institutions like banks
• Seeking out a business partner
• Venture capital
Before you decide on which business finance method is better than the other, there are some factors you should consider. First, consider all the options you have. It is important to create a primary and secondary plan. You can have a plan C as well. Then, consider the type of business or product you want to make and the amount of money you need. For instance, crowdfunding or credit cards may not be sufficient if your initial capital is in the millions. In such a case, an angel investor or venture capital may be the best option.