It is the startup seed funding season of the year with Y Combinator just finished and Disrupt SF still to come. One major issue startups face is that of having enough funds to actually begin treading down the way of success. To share the ugly truth, there are very less ways in which a startup may be able to collect the amount of fund that they require to set things up for the startup.
Even though a startup requires very less money, in the end, even to manage as much becomes a task to manage. Coming back to the main question, “how do you gather funds to support your startup?”
Here are the three sure-short and safe ways to lead you down the path of raising fund for your ideas and startup.
Bootstrapping is all about gathering the needed fund on your own. Pitch in your savings and ask your partner to do the same, ask for money from a friend or a family member. This way, you will not be in innate debt but will have enough money to start a startup. Also the money you do take from a relative, will not have to be paid in a haste and they (hopefully) will not charge an interest on the money given as well.
Even though this way of gathering funds for a startup may sound a bit childish, it has worked wonders for these famous startups: Github, Mailchimp, Grasshopper, Appsumo, 37 Signals, TechCrunch and Mashable.
Benefits of Bootstrapping
- First of all, as an outside source is not funding the project the interference level, when it comes to the decision making process, is very less and thereby there is more freedom.
- While other startups spending time in generating funds through other means, you have already begun your work and thereby started generating revenue.
- As the money spent is your own, or your friends’ and family’s, you would make sure that every penny spend is accounted for and is worth it.
Drawbacks of Bootstrapping
- The money raised either belongs to you or your friends and family and if the startup doesn’t work out, then the money lost will be your own as well.
- While less investors does give you all the freedom of decision, but it does mean that you are missing out on the guidance. Also, when reputed investors invest in a startup, the startup gets a high reputation without working for it in the first place.
Startup Accelerators Program
Startup Accelerator programs are stages raised specifically for startups, to show their talents and win the hearts of investors. This stage works two-way:
1. Firstly if the presentation or the pitch made is good enough and the product/service offered are innovative, then investors give the give in bucket load of money.
2. Also, once your startup’s and your name gets called out on such a stage that is being keenly observed, then it does work brilliantly for your repute and fame. Post this, whether people use your service or not, they will definitely talk about you and look out for you.
Platforms like these are many and the sort of companies that have benefited from this are: Dropbox, Airbnb, Reddit, Disqus and many more.
One such startup accelerators, Y Combinator (world’s top accelerator) have raise on an average of $1.5 Million.
Benefits of Acquiring Funds from Startup Accelerators Programs
- Your and your startup’s reputation will go sky high, once you appear on a stage like this.
- If an investor decides to fund you, then all the monetary issues are solved and you can fully focus on the plans ahead.
- You will be entitled to guidance from the experienced intelligences.
- You get benefited by the resources in terms of contacts and PR that your investor has made in his/her long career.
Drawbacks of Acquiring Funds from Startup Accelerators Programs
- The time invested in such a process is a lot.
- There is no guarantee that you will get sponsorship or that investors will invest money in the project.
- If everything works out well then it is possible that the investors do not give you the space of making the decisions without interference.
But these startup accelerators programs, will definitely give you the stage to get into the market and train you to go for your idea.
These are the Top Accelerators
|Y Combinator||SeedCamp||JFDI.Asia (Asia)||500 Startups|
|Techstars||Techstars London||SparkLabs (Korea)||Founder Institute|
|Startup Bootcamp||Open Network Lab|
Venture Capital (VC)
Venture Capitalists or Venture Capital firms have been the lifeline to many startups in the past and even now, the one last resort for any startup seed funding is venture capital. These firms basically allocates funds to the startups that it founds worthy. With years of experience, it has become easy for these firms to judge from the idea, that which startup ideas can be trusted to grow.
They then choose to provide with the funds and sign a contract using which, in one way or another, they earn their money back. The ways of getting back the money invested from the startup are many:
1. Ask for partnership in the startup when the firm becomes profitable.
2. As for a certain % of Return on Investment. and many more. The idea is to not take back the money directly in the form of cash or check, but to find different means of getting the invested money back.
Benefits of Venture Capital
- The money taken does not need to be given in, in the form of money itself. So there is no immediate pressure.
- Also, once invested the Venture capital firms do not interfere in the process of decision making.
- All the money required is gathered all at once only.
- It involves spending less time in getting the money sanctioned.
Drawbacks of Venture Capital
- Once the money is taken, some amount of your hard earned profit will belong to the VC.
- The liability increases as this is almost like taking a loan from a bank.
Apart from these basic ways in which funds can be raised; here are some tips to get your startup funded.
- Do not expect too much. If you keep the hopes high and by any bad luck lurking around, you do not get the funds required, then the effect it has on the morale is way worse than the actual issue. Failing at a point of time affects everyone, but if you are prepared for the worst, then you will have enough hope left to get up and get going.
- Grow your startup continually. Most of the startup founders take an idea and sit with it till it ends up failing badly. What is necessary is to make sure that the original idea, however good it sounds, is worked upon again and again. It is only with experience that some sort of a better understanding can strike you but even before that what you need is an open minded approach towards the idea.
- Getting the perfect idea is difficult, almost impossible. A perfect idea can be developed over a period of time. So one need to work on minimum viable product (MVP). But that required the willing acceptance of failure and at the same time the ability to take a learning out of every failure.
- Investors are indecisive but that leaves matters in your hands. It is difficult to get invested in, but beyond that it takes a long time to even get that one ‘yes’/’no’ from the investors for months. This can eat up the precious time that may decide the success or failure of your startup. Make sure you make a stand and every time you meet the investor, you leave only after knowing the next feasible step.
These are some tips that will help you in your search of seed-funding for startups. It is important to keep in mind all the aspects of the fund raising while making that critical decision at the right moment. And before wrapping up, here is a last bit of piece from our side, “Good Luck!”