What’s the Fastest Way to Fund Your Business?
You’ve got options to fund your startup. Which one is right for you?
It is perhaps the most important question in business: How can you quickly raise money to fund your startup dreams? Raid your savings? Ask family and friends? Try crowdfunding, such as Kickstarter? Seek funds from an angel or venture capitalist? Perhaps go the more traditional route, and take out a business loan? Each direction comes with strings attached that may affect the entire life of your business and could even decide whether it succeeds or fails. Choose wisely.
How do you know which path is right for your business? Here are some questions to guide you:
- What are your business’ goals?
- How much do you need and when?
- How mature is your business? Where is your product in its development cycle?
- What are you willing to sacrifice?
- How much experience do you have in the industry of your business? Do you know the marketplace well and understand customers’ needs?
- Have you created other companies, or is this your first time? If you have the experience, what’s your track record of success?
Let’s look at your options
You’re standing at the convergence of many paths. Some will lead you to glory, legacy, and maybe even riches, while others hide dangers that will slow you down, keep you from reaching your full potential, or even drag you into a nightmare. How do you decide which path to choose? Let’s take a look at your options.
- Keep your current job, start a side hustle, or use the money you’ve set aside for a hobby to fund your startup: This route carries the least risk. It’s perfect for businesses and products that don’t require much (if any) upfront capital investment. The downside is that this can be a longer route since you’ll only be able to devote a few hours each day to your business. Pack your patience on this journey, but it’ll be a smoother, less stressful ride.
- Use your savings: Got money in the bank? Tap it. The nice thing about this is that the funds are immediately available to you. The downside — and it is a big downside — is that you’re taking a serious risk if you use too much of your savings. If you or a loved one get sick, injured, or if someone loses their job, then you won’t have that cushion to fall back on. Walk this path with your eyes wide open and talk with your family before making any big decisions.
- Ask family and friends: Who says you shouldn’t mix business and pleasure? You believe in your company and you’ve taken the time to do a lot of research and put together a solid business plan. Your friends and family are going to be aware of and impacted by your business anyway — why not give them the opportunity to have a more formal say in it by becoming an investor? The downside of this is that if things go sour and there are disagreements about the direction of your business (and there always are), then things could get messy — like really messy. Legal messy. Are your relationships with your loved ones really worth raising money for your business? Maybe so. This path could strengthen bonds beyond imagining by creating an amazing business together, or it could ruin relationships for a lifetime. Choose wisely.
- Kickstarter: Kickstarter is a way to raise funds for your business online. This is serious stuff. More than $4.7 billion has been raised on Kickstarter by more than 17 million people. To say this is an amazing opportunity is an understatement. Here’s the thing though — there’s a lot of competition. If you want your project funded, you’re going to have to work hard. Only about 37% of projects are funded on Kickstarter, and most successful projects raise less than $10,000. So, while you might be one of the lucky ones and get funded at a high level, it’s more likely that you’ll put in a lot of work without an immediate financial reward, if any. Still, even if you don’t get your project funded on Kickstarter, you’ll learn a lot just going through the process.
- Angel or venture investors: Raising money through an angel or venture capital investor is an interesting option. You can get a lot of money that never has to be repaid, unlike a loan. That fact alone makes this an attractive option. Not only that, if you can find an angel, they’ll likely act as a mentor for you and your business, helping to grow your enterprise at a rate that might not be possible without them. Angel investors use their own money to invest in your business, but will likely be able to fund your company at a lower level than venture capitalists. Angel investors typically invest at the earlier stage of a business or product’s development cycle than venture capitalists. In contrast, a venture capitalist usually doesn’t invest their own money in your business. They work for larger companies and are often willing to invest more money, but typically invest at a later stage to reduce their risks. They also don’t usually act as mentors. Both angel and venture investors require you to give them partial control of your business. They’re investing a lot of money in your company, and want to have a say in how it’s run to help it grow as fast as possible and maximize the return on their investment.
- Take out a small business loan: Taking out a business loan can be a smart move or a real headache. Whether you have an amazing or bad credit score, loads of revenue, or none at all, there’s a loan for you. Money is available at your fingertips and you can get it fast to jumpstart your business. The major downside is, of course, that you have to repay what you borrow plus interest. In general, the lower your credit, the higher your interest rate will be — which means that every dollar you borrow costs you more. Considering that most businesses fail, that’s a lot of risk to take on. Travel this road only if you have a solid business plan, have taken the time to thoroughly understand the market, and are highly confident that you’ll succeed.
Take the time to prepare; you’ll be thankful you did
Risk is found along each of these paths. Since you’ll need to choose one, the question is how much risk are you willing to tolerate? What are your fallback plans if you run into trouble? Before setting out on your journey, make sure you take the time to prepare. You’ll be thankful you did when trouble eventually crosses your path.