How to Get Funding for a Startup
Written by: Wilson College • Nov 1, 2023
How to Get Funding for a Startup ¶
Launching a business can be both fulfilling and challenging. While putting their vision into action, entrepreneurs need to navigate the difficulties of funding a business, one of the most significant aspects of starting an enterprise. When online invoicing company Skynova surveyed nearly 500 startup founders in 2022, the founders cited a lack of financing as the top reason for their failure.
Knowing how to get funding for a startup is critical to entrepreneurial success, and becoming educated about the many ways to pursue funding is a good place to start. Anyone who aspires to start a new business or enroll in a Bachelor of Arts (B.A.) in Entrepreneurship degree program can benefit from learning about securing the funds necessary to get an enterprise off the ground.
What to Do Before Pursuing Startup Funding ¶
Whether individuals are opening a restaurant, launching a tech firm, or starting a consulting business, they need to do their homework before seeking startup funding. Performing thorough research, analysis, and planning can help entrepreneurs refine their vision and understand the business landscape. For example, it’s important to:
- Conduct market research. Familiarity with the market for a product or service is critical. Entrepreneurs need solid information about market size, demand for a product or service, degree of market saturation, and pricing. Having this information can be vital in answering questions from potential investors.
- Analyze the competition. Aspiring business owners need to know their competition. In addition to identifying other firms in the market, they need to know about competitors’ market share and analyze their strengths and weaknesses.
- Estimate startup costs. When calculating the costs to start a business, it’s important to consider both one-time expenses (for example, equipment necessary to launch the business, permits and licenses, or branding and website design) and ongoing expenses (for example, salaries, insurance, and advertising).
- Craft a business plan. Creating a business plan isn’t a mere formality. A sound business plan forms the basis for moving from idea to launch. For example, a strong business plan contains items such as a detailed description of the business, a plan for the organizational structure, detailed descriptions of the products and services, a summary of the funding requirements, and financial projections.
Tips for Seeking Startup Funding ¶
The process of funding a startup can feel overwhelming, but aspiring entrepreneurs can take several approaches to make that process easier.
Research Potential Investors ¶
Becoming knowledgeable about potential investors can help entrepreneurs narrow their search for funding. For example, it can be helpful to research the areas in which potential investors specialize or whether they have experience serving as advisors. It’s also important to research whether potential investors supplement the funding they provide with other services (such as marketing or public relations) to help a startup grow.
Pursue Networking Opportunities ¶
Entrepreneurs must make connections with people and organizations that can help them launch their startups. Individuals can build networks in many ways, such as by working with mentors or attending industry conferences. They can also network online using websites such as LinkedIn to establish connections with others in their field.
Participate in Startup Events or Pitch Competitions ¶
Many organizations hold events where entrepreneurs can learn about starting companies, meet other entrepreneurs, or gain insight into raising funds. Pitch competitions—in which entrepreneurs make their best pitches to win awards or even funding—also enable individuals to practice presenting their business ideas and to build their professional networks.
Know Your Options: How to Get Funding for a Startup ¶
Becoming knowledgeable about how to get funding for a startup requires developing an understanding of the specific ways to obtain funds. The funding approaches described below are some of the most common methods for funding a startup.
With bootstrapping, entrepreneurs use their personal funds to finance their business. While this means that they risk losing their personal savings, it also enables them to have full ownership of their business. Depending on an entrepreneur’s financial situation, bootstrapping can limit their business growth, but it can also motivate the entrepreneur to develop an innovative business model that can generate cash flow.
Venture Capital ¶
Obtaining venture capital involves receiving funds in exchange for a share of ownership in a business and a role in overseeing the business (for example, getting a seat on the board of directors). Before investing, venture capital firms typically review several aspects of a business, such as its governance structure, management team, and financial statements.
Entrepreneurs frequently receive venture capital in stages after meeting specified milestones.
- Seed funding can finance the development of an idea.
- Startup funding can move a business into production.
- Emerging funding can help a business expand its presence in the market.
Crowdfunding involves raising funds from many backers, or contributors, often through websites specifically designed for this purpose, such as Kickstarter. In some crowdfunding campaigns, the backers donate with no strings attached. However, in other crowdfunding campaigns:
- Contributions are considered loans that the entrepreneur must repay
- Backers receive a share of the equity in the business
- Backers become eligible for rewards ranging from small (for example, T-shirts) to substantial (for example, free products or travel)
Crowdfunding enables entrepreneurs to reach a wide audience of potential contributors, but reaching a fundraising goal through crowdsourcing can take a long time compared with other methods for funding a startup.
Entrepreneurs who want to have complete ownership of their business can obtain loans that they’ll need to repay. The U.S. Small Business Administration (SBA) offers loan guarantees that can help qualified individuals obtain loans to start their business. Loans can come in various forms, such as the following:
- Traditional term loans from a bank with specified repayment schedules
- Lines of credit that offer flexibility in withdrawing funds
- Loans from friends or family that can accelerate the funding process
With no obligation to repay, grants from public and private sources are a great way to fund a startup. However, the competition for grants can be steep and the application process can be lengthy. Many grants are geared toward specific markets, while others are designated for assisting women, minorities, or veterans in launching businesses.
Obtaining grants involves conducting thorough research into various grant programs and their requirements. In some cases, applicants need to develop detailed grant proposals that outline their plans for the business and financial projections. While funding a startup through grant funds can be a time-consuming process, the potential benefits can make it worthwhile.
Knowledge of Startup Funding Is Key to Entrepreneurial Success ¶
Knowing how to fund a startup can enable aspiring entrepreneurs to transform their aspirations into reality. Selecting the funding methods that best fit their needs allows entrepreneurs to put their business plans into action.
Individuals with an interest in entrepreneurship can explore Wilson College Online’s B.A. in Entrepreneurship degree program to learn how it can help them achieve their goals. Offering students the opportunity to develop skills in areas such as marketing a product or service, creating a business plan, and setting goals, the program can establish a strong foundation for launching a business.
Begin your journey to entrepreneurship equipped with valuable knowledge and skills.