What are the top 8 financing Options for Start-ups? | Global Business Consultants );

Stewart Mathis, Guest Blogger at GBC, 5 minute read

What are the top 8 financing Options for Start-ups? 1


So, the wheels are finally in motion. Your new start-up company has received the go-ahead after months of planning, years of brainstorming and hours upon hours of nervous nail-biting.

 You’ll be pleased to know that the statement ‘eight out of 10 start-ups fail’ is in fact a myth. According to statistics from the US Bureau of Labor Statistics, 50 percent of all new businesses make it to their fifth year and one third make it to a decade. However, the second highest reason for failure, cited by CBinsights, is running out of cash.

 Let’s crunch some numbers.

 1.     Using Savings

You may feel reluctant at first, but breaking open the piggy-bank can be a safe option; if you’re money smart. The question is, should you throw all your savings at your new business or edge the payments in slowly? While celebrity entrepreneurs such as Alan Sugar made their millions jumping straight into the deep end and spending their savings, it doesn’t mean the same approach will work for you.

How much money is at your disposal, how much you can borrow, and leverage of personal savings are all important variables when it comes into tapping your personal savings to fund your start-up.

 You must think carefully about the prospect of losing personal money, even if it inspires extra motivation.

 The Purpose Is Profit: When you use your own money, fear of failure becomes your greatest motivator.” – Ed McLaughlin and Wyn Lydecker

2.     Family and Friends

Similar to the above, this option carries equal great risk when there is potential to lose someone else’s money. Approaching people you know often works at the idea stage of a start-up, when a lack of revenue is equal to a lack of appeal.

 Branching out from friends can lead to business contacts you may rarely get the opportunity to speak directly with. Putting a family member’s cash flow at risk is a bold move. You must weigh the advantages and disadvantages.

 3.     Angel Investors

As heroic as they sound, angel investors could be your shining light. Often investing in small start-up’s or entrepreneurs these investors can be within your list of family or friends. The capital angel investor can provide a one-time investment to propel your business forward or provide steady injections of cash over prolonged periods of time.

 Offering more favourable conditions to other lenders, the angels are often a popular choice, according to angel equity: Angel investors typically seek investment opportunities in seed, start-up and early expansion stages. By becoming involved with companies that seek capital they add a resource of expertise in a variety of areas including sales, governance, senior management, international markets, technology, operations and finance.”

 4.     Crowdfunding

Since it’s formation in 1997, a lot has changed in the crowdfunding industry over the past 20 years. Now, crowdfunding can be utilized to raise capital from the Crowdfunding network of accredited investors. Crowdfunding allows startups to raise money in a variety of methods including debt, revenue share, convertible notes or equity.

The bonus is that where other initiatives take money from a percentage of the funds raised, sites like Crowdfunded have a set monthly fee which starts at under $299. 

  • The average successful crowdfunding campaign is $7,000
  • The average campaign lasts 9 weeks
  • Campaigns that can gain 30% of their goal within the first week are more likely to succeed

5.     Alternative Finance Options

Beyond the bank loan there are long lists of other viable finance options. Kickstarter options include CircleUp, EquityNet, Fundable, MicroVentures, Peerbackers, RocketHub, SmallKnot and SeedInvest; all offer a variety of packages to start-ups at different costs.

Fintech, which are computer programs and technology that is used to support banking and financial services, saw a huge increase in investment over the past seven years from $930 million to over $12 billion; although some experts are adamant Fintech is on the decline.

 If you decide that small business loans are the way forward, then you’ll want to check out this guide to getting the best small business loan.

6.     Accelerator Money

Accelerator money can come in many forms, but is ultimately used to promote rapid growth in a short space of time, often a matter of months. In exchange, start-ups are accepted into a program where they obtain mentorship, office space and funding in exchange for company stock.

 It’s a quick-fire method to get the ball rolling, at the sacrifice of equity. The good news according to a survey conducted by the impact investor Unitus Seed Fund found that 13% of start-ups were funded six months after graduation. In contrast, those for accelerators, the percentage was raised by 20%, and for start-ups graduating from hyper-accelerators, 71% of start-ups were funded six months after graduation.  

7.     Venture Capital

The two structures of venture capital are equity and convertible debt. Equity is the more common stock and, once invested, equity is owned outright unless there is a form of sale or liquidity. The second of the two, convertible debt, is a debt instrument that requires repayment.

According to The Finance Resource, in many venture capital deals, especially those related to technology, firms are expecting to receive 35% on their investment per year, if not higher. In exchange, a wealth of business expertise, additional resources and connections will be at your disposal. Although, analysis by published in the Journal of International Financial Markets, Institutions, & Money found that venture capital investment made the biggest impact on start-ups with 5-19 employees.

8.     Being Profitable From Day One

It sounds pretty simple, and it is pretty simple. If you’re profitable from day one then you already have a leg-up on the competition and can expect a lot less stress when mapping out finances. Of course, it’s harder than it sounds, but many companies strike gold first time.

Take inspiration from BrandContent, Severalnines and Away With Tax to make profit from day one. Then again, if you’d rather take inspiration from Thomas Edison in the spirit of viewing failure as the path to success: “I have not failed. I’ve just found 10,000 ways that won’t work.” is a warming quote from Edison.

It may seem like an overload of information but in reality this is positive news. There are multiple options for you to help tackle the finances of a startup company and all of them offer support. Support ranges from that of family and friends to online crowdfunding experts or external companies, but the important note is that they are there. Weigh up the options, understand risks vs rewards and be confident going forward with your decision. After all, this is your dream we are talking about.


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