Obtaining the funds needed to build and launch a startup is hugely challenging, especially if you aren’t sure where to begin. Depending on where you are in the development stage of your startup, choosing the wrong funding method can mean the difference between a successful startup and failure.
Thankfully, there are numerous financial tools like peer to peer lending, crowdfunding, and investor marketplaces like AngelList that many entrepreneurs use when seeking funding for their tech startup. With half of startups failing in their first year of operation, the last thing you want is to fall into this statistic, so here are the best tips and options for tech startups requiring funding.
Create a Business Plan
Before obtaining funding for your startup, you will need to have a solid business plan in place that outlines your objectives and goals for the next 12 months. The sole objective of a business plan is to help articulate a blueprint for starting your company. Alongside your executive summary, business overview, operations plan and competitive analysis, your business plan should outline your finances, cash flow management, and sales trajectory.
If you want investors to jump on board with your tech startup, your business plan needs to thoroughly outline your personal and business finances. The financial area of your business plan will let investors know whether your idea is viable, so creating an expenses budget, income projections, and dealing with liabilities and assets are additional factors that must be included in your business plan.
Self-Funding
For many tech startups, it’s normal for team members or founders to put their own cash into the venture. Funding your business with your own money is one of the best ways to show future investors that you’re dedicated and serious about your startup. While you will need to have some liquid assets or savings to start your business, putting your own money into the project will show others that you are passionate about your idea and willing to part with your own hard earned cash to get your business up and running.
If you’re financially able to do so, self-funding your startup is the only real route to maintaining total control in the early stages of your business. For those who do require funding, you need to be prepared to give away equity to others or take on debt that will have an impact on your bottom line.
Crowdfunding
Another great way to raise funds for your tech startup is by using crowdfunding. There are several types of crowdfunding that you need to know about to help you find a model that suits your needs, such as equity-based or rewards crowdfunding. Whichever route you pick, crowdfunding is classed as a low risk option for new businesses that want to spread the message of their brand and products, as well as get the funds needed to succeed.
One of the main reasons why startup owners use crowdfunding is that it gives you the opportunity to show marketplace adoption to investors. When investors see that other individuals are willing to part with their money and put it into your idea, you have a higher chance of them considering your startup as an investment for themselves. Lastly, rewards-based crowdfunding is another avenue that you may want to consider which will give you control over your company. Many companies choose this option to avoid censorship.
Friends and Family
If you’re struggling to get investment for your tech startup, you may want to speak to your friends and family who could be perfect investment partners. Not only do these individuals love you and know your strengths and talents, your friends and family are likely to support you through thick and thin, regardless of what you are aspiring to do.
You need to remember that while a family member or friend can be a great partner to have on board, there are benefits and downsides to obtaining a loan or investment from them. While someone from your close circle may put faith in your idea, if they don’t have any experience in funding, there could be problems that occur further down the line. Borrowing money from your nearest and dearest can change relationships for the better or worse, so make sure that you weigh up all the risks that come with investing. You should treat them like a professional investor and outline all the risks that are associated with your startup.
Angel Investment
If you are a tech startup that not only needs funds for their business, but mentorship and guidance, angel investing may be the right option to take. In general, angels will invest anywhere from the seed stage all the way up to £1 million. In some cases, multiple angels are brought into a funding round. Most angel investors have a sound knowledge of the business world, so unlike taking out a loan, invested capital doesn’t need to be paid back should your business fail.
If you decide that an angel investor is right for your tech startup, it’s advised to seek out someone who is in the same space as your startup or possesses previous success and experience in your field. Many angel investors want more control and ownership of a startup that they put money into, so you need to be prepared to hand over some of the reins.
A Loan
Applying for a business loan is another good way to acquire funding for your startup. Whether you choose to apply for a bank loan or go down the route of peer to peer lending, there are several options to pick from. If you have bad credit and are finding it difficult to secure funding, you may want to consider visiting New Horizons who can help you find a short term loan.
New Horizons work with a variety of lenders that offer short term loans. This information may help and give you a better insight into how short term loans work, as well as how it can benefit your tech startup. New Horizons work with a panel of lenders who use soft search technology, meaning you can find the best rate without worrying about how it will impact your credit rating.
Venture Capital
If you are looking for funding at £1 million or above, you will need to turn towards venture capital. While venture capitalists will need an airtight business plan before investing, they can give you a larger sum of money than the options listed above. VCs tend to invest in a number of different companies and hope to make cash off one (or all) in order to pay back investments to their clients. This means that you will need to make your startup stand out and understand that venture capitalists are looking for a return between 3-10 times their original investment, so devising an exit strategy is advised.
The best way to get in touch with venture capitalists is through introductions from other investors and entrepreneurs. With large money at stake, it’s important that you understand the value of networking, especially if you are seeking 7 figure sum investments.
Without the correct funding, it’s likely that your tech startup will stay as a pipe dream. From the planning stages through to launching, having the right funding behind you will minimise the risk of your company failing within the first year.
