Fri Nov 24 2023
5 min read
5 Possible Different Types Of Startup Funding
Funding forms as one of the most important and difficult processes at the beginning of the startup. This forms as one of those crucial steps where some startups fail. Gathering the right amount of money forms a significant step in the success of any startup. Without it, the startup will be starved of any proper services and not be able to perform to its full potential. But the question arises, what are the types of funding sources that can be used by startups.
Types of Startup Funding
There are many types of startup funding that are available for use. However, we need to choose them based on your requirements and what suits you. There are pros and cons of each of the startup funding types. Everything might not serve your purpose and some things can also drag you behind in the long run. So make sure that you take this decision with care.
Personal Savings
Many people resort to this method since it sounds one of the best. In this, you are going to use your savings to invest in your startup so you will essentially have no liability. It’s your own money and therefore you don’t owe anyone anything. Due to this, personal savings are one of the most sought options for many entrepreneurs. But it’s not all rainbows and unicorns. It can also cause a major disadvantage if things don’t work out properly.
Pros:
- You are the investor in your business and therefore have entire control over your business and are not answerable to anyone for your decisions. You can use the money in any form without any accountability to anyone else.
- Another major advantage is the satisfaction of not having to owe anyone anything. You are putting in your own money which will result in your sole profit.
Cons:
- Angel investors and venture capitalists are already aware of stepping into your own business. So partnering with them can provide you with a great opportunity of getting mentored which is robbed off while using personal savings.
- Another threat is that if your business doesn’t go the way you intend to be, you stand to lose all your savings and have nothing to start over with again.
Family and friends
One of the other types of startup funding is by getting the help of family and friends. People with supportive friends and family can get some who are interested in your idea and want to invest in it. Sometimes family and friends can invest in your startup because of personal reasons. This can be especially useful in getting the business off with a good start.
Pros:
- The funding in this method is especially fast and you usually have no such deadline of having to pay the money off. You can pay it at your ease later when the startup boosts up and you can afford to. This flexibility makes this option highly used.
Cons:
- Family and friends might usually just invest in the business because of you and not because of the plan. So you can lose a lot of sight of someone who can recommend whether it’s a good idea to start in maybe the first place.
- Generally, this method is not able to muster up many funds and you can only get an initial investment.
Crowdfunding
Crowdfunding is one of the best startup funding types because of the many benefits that it holds and the ease of having many people investing in your business without approaching them much. You can do it through many crowdfunding platforms that are available online or can use your networks offline.
Pros:
- It has great potential in expanding your business and giving you all the money that you’ll need without having to get an investor
Cons:
- You will have to spend some time and attention on this field to generate appropriate amounts of revenue that can benefit your startup.
Angel investors
Angel investors are those investors who will buy shares of your startup and demand equity in your startup corresponding to the amount. Some angel investors use a tough process of screening and use means of pitches after which they decide whether or not to invest in a particular startup.
Pros:
- Angel investors are usually a big part of your industry before your advent and can therefore provide valuable advice on what to do and how to do things. This can be especially crucial when you’re trying to get into the field for the first time.
- The business terms of angel investors can also be partially flexible and can allow you to run the business on your terms.
Cons:
- However flexible that your angel investors maybe, you will lose a certain extent of ownership of your startup and have to clarify your decisions to them before taking them. This can hamper your usual flow of work.
Venture capital
Venture capitalists are similar to angel investors except that they solely run for the money. So if your startup stands some chance financially in the market, only then would they agree to invest in it. Additionally, they are in only for the money and will put in a considerable amount of money for an equal share in your startup.
Pros:
- Alike angel investors, venture capitalists are also aware of the business fields and their trends. Therefore, they can be quite helpful for advice and tips.
- When a venture capitalist invests in your startup, you will be opened to the doors of a wide network that can include your future investors and partners.
Cons:
- You lose a lot of ownership of your business and can lose your right to make all decisions on only your terms.
Final words
There is an endless pool of startup funding types. You just have to choose those types of startup funding that suits you and your needs. There might be some things that seem more lucrative at first, but don’t forget to evaluate the whole situation and think about the long run. The right form of startup funding can give you the boost that you were looking for and can also help you otherwise.
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