After endless brainstorming and development of new business models, the next thing your start-up needs is sufficient funding. Like any other entrepreneur, you want to take this great idea to the next level with high hopes of succeeding. But if the recent statistics are anything to go by, there’s a huge risk your idea may never transition into a business as you expect.
The reason being—most start-ups fail in their early years of operation due to insufficient funding. These statistics document a 90% non-transition rate highlighting funding as one of the common reasons for start-up failures. So, how can you navigate through this challenge and take your idea to the next level as an innovator? We have all the answers for you in this article.
1. Bootstrapping Your Business
There can never be a better way of funding your business idea than going back into your pocket. It’s considered the most effective way to fund your start-up, especially when starting. Bootstrapping can be anything from your saved funds or funds obtained from friends or family.
This approach has lots of immense benefits to your business. First, you won’t have to go through the rigorous exercise of explaining your idea to investors who may demand a huge share of your business. Furthermore, your family and friends are a much more flexible group to convince than external financiers.
Bootstrapping is often a good point to start, even if you have other funding opportunities. However, it can only sustain you if the business idea doesn’t require substantial capital. And given many start-up businesses need a constant capital injection, it may not guarantee long-term viability.
2. Sell Your Business Innovation Partially
Your idea or innovation is probably the biggest business asset you have. And if well utilized, it can provide the right funding for your business in the long term. For this to work out, though, you’ll need all the legal rights barring anyone from implementing it. This means you’ll need to secure intellectual property rights before you can leverage your innovation for funding.
But how much is a patent, and is patenting your innovation a worthy investment? As per intellectual property rights, any idea that’s patented cannot be used by any party. The owner of the patent rights reserves exclusive rights to use the patents in any way and also sue anybody who tries to mimic the idea without consent.
Luckily, the general cost of securing a patent is much lower than what you’ll get when you license another company to use your idea at a fee. These include all the big companies that are always looking for good start-up ideas to invest in. They collectively screen the uniqueness of your idea before investing. If you’re fortunate enough, they’ll provide mentoring alongside paying you handsomely.
3. Secure Small Business Loans
Business loans are one of the most readily available means for start-up financing. The financial institutions will offer a loan to any entrepreneur who approaches them with a solid business plan. This plan should be well laid out to showcase the businesses’ viability and its long-term objectives.
Financing from banks comes in two different forms. It can either be offered as a working capital loan or general funding. Depending on how you present the funding request, you’re eligible for any form of financing. However, most banks are increasingly hesitant to offer loans to small businesses due to a high rate of start-up failures.
So, you’ll need to put in your best effort to get some of these financial institutions on your side. A long-standing relationship with the bank will also facilitate easier and faster loan applications. When securing funding from lending institutions, ensure you understand all the terms and conditions set. This is because many financial institutions have manipulative funding provisions.
4. Secure Funding Via Business Accelerators and Incubators
The modern-day business world has endless opportunities to help young entrepreneurs with brilliant innovative ideas. For instance, colleges and other higher learning institutions now have accelerators and incubators that provide mentorship and financing to top entrepreneurial ideas.
If you have a good start-up idea, you must register in the program and start partnering with financiers. The programs run for 6-8 months and demand time commitment from the business owners. They are a good funding option for early start-ups that may not require huge capital. In addition, incubators and accelerators provide an ideal platform to network and share ideas with fellow innovators.
The disadvantage is that they are not often meant for every business idea. In most cases, they focus on ideas that are too tech-oriented. Incubators differ from accelerators in that they provide both training, mentorship as well as networking. Accelerators only help your business off the ground by providing much-needed financing.
5. Crowdfunding
Crowdfunding is newer than most funding options on this list. The funding option involves taking a loan, contribution, or investment from multiple people simultaneously. This form of business financing is first initiated by sharing a business plan and a detailed description of your business on a crowdfunding platform.
You have to follow up by sharing the business goals and the funding needed for the business. A few reasons why you need the money are also a must-have in your funding request. The people on the crowdfunding platform can then read about the business and fund the idea if they find it viable.
Funding can either come in pre-buying the product or contributing. It’s often viewed as a show of faith in an idea you believe in. The biggest advantage of crowdfunding is that you’ll have no debts to service once the business starts thriving. However, many companies and start-ups aim for crowdfunding. So you need to be the best to stand a chance of getting some funds.
Bottom Line
The options to finance your business idea are limitless. All that’s needed is a show of commitment on your part. Remember that every funding decision involves a complex implication on the overall ownership and control of your business. So, consider all the terms and conditions before entering into any funding agreement.
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