Exploring the Various Ways to Raise Capital for an Established or New Business
In a perfect world, every entrepreneur would have sufficient capital to launch their business idea or expand their established business. Although that is far from reality, there are a number of options available. The first step is identifying and beginning to understand them. Most funding for a business can generally be broken down into equity or debt.
There are internationally recognized series of funding rounds for businesses that seek outside capital in order to develop, launch, and grow.
Angel Investors – When your business is in its infancy, you will start with seed funding. At this stage, your business will likely still be finding its footing; working to perfect the product(s) and/or find a product-market fit. The primary type of investor that provides seed funding is an angel investor. Nowadays, angel funding can range from $25K to $2M in exchange for preferred equity ownership.
Angel investors are typically high net worth individuals (HNWI) that often operate independently, investing their own funds, though they may combine resources with other angel investors in a syndication. It can be intimidating to approach angel investors – especially if it is your first time seeking outside funding – but there are many resources and organizations that put entrepreneurs and investors together.
Venture Capital (VC) – While angel investors get involved early on, venture capitalists typically don’t get involved until the company is more established. This is commonly referred to as Series A funding. The main difference is that a company at this stage has already produced a minimum viable product (MVP) – and has established a product-market fit, both of which they would have developed during the seed stage. In other words, your company has usually cultivated a customer base and is generating material revenue at this stage.
Venture capital tends to come from a VC firm or fund that has pooled resources and invested in several businesses to spread out their risk and increase the chance of positive returns overall. This is why they invest in the more established and proven businesses of the startup realm. They often invest $1M or more for preferred equity.
Some entrepreneurs don’t want to be beholden to investors or have been unsuccessful in finding an investor. Debt financing provides one alternative and, in the simplest sense, is the act of borrowing money to be repaid with interest at a later date.
Bank Loan – The most popular debt financing option is a bank loan. It is important to note that it can be harder to secure a bank loan as a new business than an existing one since they often look for established success and stable cash flow. However, it’s not impossible and there are even programs through the Small Business Association that help entrepreneurs, new and established, secure the financing they need through bank loans. One major difference from series funding is that your personal assets (collateral) may be put at risk as you are still responsible for repaying the loan even if the business fails or closes.
There are a number of ways to finance or fund your new or existing business and they all have one thing in common: they require or warrant some type of sales collateral such as a business plan, pitch deck, executive summary, etc. Joorney’s professional business writers and designers are skilled at creating all forms of sales collateral that are geared towards helping you get funded. It doesn’t matter if it’s a bank loan business plan, an investor business plan, or any other type of plan, our business experts will prepare a document that will help set you on the path to success and convince others to buy into your plan.
There are a number of alternative methods for funding and it seems entrepreneurs and funders are constantly challenging the way the funding landscape works.
Friends & Family – It may seem obvious but entrepreneurs often overlook those closest to them. Who is more likely to believe in a new idea than those that know founder(s) best? Friends and family are often willing to loan or contribute funds under much more favorable terms than an investor or a bank. Seeking funds from friends and family is often considered the pre-seed stage in the context of series funding.
Crowdfunding – This type of funding is less traditional but has become popular in the social internet age. This is the process of funding a business idea by raising small amounts of money from a large number of people. This usually takes place on popular platforms like Kickstarter or GoFundMe.
Accelerators & Incubators – Accelerators and incubators may provide seed funding but their focus is on providing the infrastructure – like office spaces or business and financial mentorship – that businesses will need to grow and thrive. Accelerators and incubators can oftentimes help with finding equity investors for your venture as well.
Venture Studios – This business development model emerged in the past few years and is most similar to an accelerator or incubator. The big difference is venture studios are responsible for the day-to-day operations, providing not just funding and advice but also the team and strategic direction. Although they are mostly formed as offshoots of existing businesses to develop new ideas to stay ahead of the market, some do welcome or allow outside pitches.