Startup Funding is money raised by a new company in order to meet its initial costs and is often a large sum of money. This typically covers any or all of the company's major initial costs such as inventory, licenses, office space, and product development.
Startup Funding Sources
The capital needed for a business to launch. The money can come from a variety of sources and are used for any purpose with the intention it helps the startup transition from an idea to a business.
Startup funding sources can include personal savings and credit, venture capital, angel investors, friends and family, crowdfunding, banks, grants, series funding, and accelerators.
What Is Startup Funding?
A business needs capital in order to get off the ground. Very rarely does a business even make a mark without some form of startup funding. So what exactly is startup funding and where does it come from?
Startup funding is the capital needed for a business to launch. The money can come from a variety of sources and is used for any purpose with the intention it helps the startup transition from an idea to a business. Additionally, a business will want to make sure that the loan covers the outstanding debt attempting to be consolidated.
Where Can Startup Funding Come From?
Many people have ideas or dreams to run their own business but are often stifled due to needing capital. With traditional funding options and now Financial Technology (FinTech) or NeoBanks being created, there are many different options on the market for funding sources when a business is wanting to start.
Personal Savings and Credit: This typically accounts for the largest portion of startup capital a business would have. If a founder is to convince others to invest, they know they have to be willing to go all-in as well. With no need to rely on anyone but yourself, this is the most accessible form of funding. This is also known as bootstrapping.
Friends And Family: While money can be a tough subject between family, more often than not they are willing and wanting to help you. Our biggest fans are typically right by our sides and usually require very little convincing as compared to another route. Just remember to ensure clear boundaries are established with the business side of the relationship.
Venture Capital: This is a form of investing that focuses on startups and small businesses. This is typically a higher risk for the investors but also has a potential for exponential growth. An investment in the form of venture capital is done so with the goal that a high return will be achieved. This could come in the form of an Initial Public Offering (IPO) or acquisition of the startup.
Angel Investors: When an individual with a high net worth is looking to put small amounts of capital into startups. Angel investors are a crucial piece within the environment of equity fundraising and are often viewed as one of the more accessible forms of early-stage startup funding. Not having a partnership or a board to answer to allows an angel investor to make bets that resonate with them personally. This is often what a startup is looking for when beginning development.
Crowdfunding: The means of raising capital through collective efforts of family, friends, customers, and individual investors. Typically done online and through social media, this approach allows a startup to be seen by a community of people and can have a fairly large exposure. This route is also much easier for a startup as they no longer have to go through their personal networks to find potential investors just to get in front of.
Traditional Banking: A more conventional means would be going the route of a small business loan. This may be an easier route for some startups than other means. Typically due to the other routes being seen as long and taxing. A business already moving forward that is possibly even seeing income flowing, would be a great candidate for this. The means to retain full ownership of the business is also maintained when compared to funds from an angel investor or venture capital where this might not be the case.
Grants: Distributed by the government for small businesses and come from either federal, state, or local. Federal grants typically offer the most money, they also have the most competition. These agreements are very specific in what is required in order to receive the grant and is usually tied to a government agency. Not only are there strict requirements in order to receive the grant but also what can be done with the money once received. State grants tend to have less money, depending on the state, but also less competition. Then on the local level, grants are usually even smaller and are geared more toward bettering the town and local community.
Seed Funding: Done so by a founder through a series of increasingly larger pools of capital in order to keep the startup going. Starting with seed funding, and then moving onto Series A, B, C, D, and even at times E. If a company has made it to Series C they are doing very well. At this stage, the business could be looking to acquire other businesses, expand into a new market, or even develop a new product. This is typically the last series of funding for a business but some will continue on to later stages if needed.
Accelerators: These are organizations offering a range of funding opportunities for startups. Alongside funding, a business is often given mentorship, resources, and support. Each accelerator is different but a business will usually “graduate” after a set amount of time. What this also means is that time with accelerators is usually intensive and time-sensitive.
Sadly, more than 95% of small businesses will fail within the first five years for lack of capital and out of all small businesses, only 35% will even apply for funding. With the financial products available through a single source at Noggin Finance, there are many viable options for your business to ensure it doesn’t flounder.