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Preferred Capital Funding - Central, Smart and Best Capital Funding
Every year, thousands of people start a business. While their type of business may be different, all of these startup owners have one thing in common: they need to raise capital to finance their company/project, cover corporate expenses, and get their business off the ground. Raising capital for a startup can be a challenging task. The good news is, there are several funding options available. Following are some of the most preferred capital funding options you should know of:
Business Angels and Family
Startups that need flexibility can benefit from getting investment from a business angel or a family office. They can be sources of ‘patient capital’ that have no pressure to get a return in a specific timeframe.
Angel investors will usually take seats on the board and spend energy and time building a business. In exchange for their dedication and money, they generally take a 15-30% stake in the company. A key thing to note is that if you secure funding from multiple business angels and family offices, you will have to spend a lot of time coordinating and liaising with each shareholder.
Crowdfunding
In recent years, crowdfunding has become a popular option for many projects and startups to get off the ground. Reg CF crowdfunding allows startups to raise substantial amount of capital by attracting many small-ticket investors.
Because of the increasing popularity of this funding method, many crowdfunding platforms have entered the market. While the model is still fairly new considering the time it takes for a startup to make a return, it is a preferred capital funding choice for many types of businesses. There are many types of crowdfunding and each one offers its own unique advantages. Equity crowdfunding is the most common choice among startups.
Non-dilutive Funding
Whether it’s in the form of a loan or a grant, non-dilutive funding can make a huge difference to a company, particularly the one that is in the earlier stages of development. It is a great funding option because it helps attract visitors and also retains value for the company. As a company, a loan or grant can get your project to the point where a partner or investor can be found.
However, this type of funding is more suitable for tech companies that are working on a single project. Most other types of businesses might want to go for more traditional funding routes. Another drawback of non-dilutive funding is that choosing it at an early stage of business makes the funding restricted to a certain region or institution.
Conclusion
At the end of the day, each specific startup will have unique requirements when it comes to capital funding. What will significantly increase the chances of success is the availability of multiple options to choose from as a company progresses through various stages of development. Having limited options can lead a startup to accept funding against its best interests. Different funding sources require different things. Aligning them is challenging and will make decisions slower.
How Does Equity Crowdfunding
Work
Equity crowdfunding is preferred capital funding. It is one of the newest types of smart capital funding methods available to startups. Although it is relatively new, it’s been gaining a lot of traction due to the benefits it offers. Just look at the number of crowdfunding platforms on the market.
How does equity crowdfunding work?
Imagine you have an idea for a startup. You draw up a business plan, think of a strategy, and analyze the costs, which brings you to the problem of money. Where do you get the money?
For many entrepreneurs or would-be entrepreneurs this is the biggest issue. It may very well happen that the banks won’t give you a loan or nowhere near the sum you need.
This is where equity crowdfunding comes in. You pitch your project on a crowdfunding platform, giving private investors a chance to fund your business. Sounds quite easy, but there’s a lot of work involved.
First of all, you need to be able to answer all the questions the potential investors may have. And they will have many questions. You need to explain what makes your business unique, for instance. If there are other businesses like yours already operating on the market, your chances of success are rather slim.
At the same time, you need to present your business plan - including production costs and profit margins. And you’d better have a good market study ready to present, as investors will want to know your market target, also a good indicator of potential success.
Benefits of equity crowdfunding
When you opt for preferred capital like equity crowdfunding, you have certain benefits, such as:
Best capital funding
When traditional best capital funding is not an option, crowdfunding can help you raise money that banks won’t lend you. Any startup can set up a crowdfunding campaign, but keep in mind that your project will be reviewed by the platform administrators before it is approved, no collateral needed.
If you go the traditional way, the bank will most likely ask you to put up some assets as collateral. If your business tanks, and you’re unable to repay your debt, you risk losing everything.
Large sums of money available
Talk about smart funding. With equity crowdfunding you can raise more money than a bank would give a startup. If you use Regulation Crowdfunding, a startup can raise up to $5 million per year, while Regulation A+ Crowdfunding allows you to get up to $75 million per year.
Are there any drawbacks to equity crowdfunding?
You need to think carefully before launching a crowdfunding project. First of all, you don’t know how much time you’ll need to raise the funds. Also, if you fail to reach your target, you might not get any money from the platform.
Also, there are costs involved. For instance, crowdfunding platforms charge a fee, roughly 6%, of the money you raised. There are other costs, referring to the campaign expenses, legal and accounting costs, which add up to 5.3% on average.
And then there’s the campaign you need to launch in order to convince private investors to fund your project. You have to have a marketing strategy, which is actually a good exercise for later on when you launch your startup. To be successful on a crowdfunding platform, you need to prepare videos and infographics and put out a lot of data explaining why and how successful your project will be.
Another drawback is that all your information will be out there. All the financial details, as well as all the details about your business, the products or services you have in mind, and they will be available to all your potential competitors.
However, when you need money and your options are limited equity crowdfunding is the best preferred capital funding solution.
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Smart Capital Funding
Smart Business Funding
If a business has been up and running for more than a few years, it has several options to secure capital. But for a startup, raising capital is usually a very challenging task. In fact, numerous businesses created each year in the country fail to succeed due to the lack of capital. That said, there are still a number of smart business funding options available that can help you acquire much-needed funds to launch and grow your business. Following are some of these options:
Family and Friends
One of the easiest and the best ways to get money for a startup business or project is to turn to family and friends. This form of funding is also one of the most flexible and fastest sources of funding one can pursue. To ensure a successful borrowing and lending arrangement, it is recommended that you have a detailed business plan as well as financial projections so that your family/friends can see what they are investing in and how much they are lending you.
Angel Investors
For startups that are thinking big, angel investors are a great option for funding. An angel investor is usually a high-net-worth person who lends funds in exchange for an ownership state in the company. They generally offer substantial amount of capital to a business because of their equity position within the company. They usually work with companies that have great growth potential and aim to transition from private to public in the future.
Business Credit Cards
Business credit cards are the most common type of smart capital funding because they have several perks and advantages. One of their top benefits is that there are no restrictions on how you can use the money. Speed of the funding is also extremely fast, which is another great advantage. You can get the money in about five business days.
Crowdfunding
Crowdfunding has become a very popular method of getting startup business funding. Most Reg CF crowdfunding campaigns strive to raise capital that ranges from $5,000 to $500,000. However, some campaigns have raised millions. The funding raised via this method is very flexible as it allows you to use the capital in any way you see fit as long as you deliver what you promised to your investors at the start of the campaign. The speed of raising capital is not as fast as friends/family or credit cards, but you can still get the money in about 30-120 days, depending on the platform you are using for crowdfunding.
Venture Capitalists
A venture capitalist or VC is similar to an angel investor. VCs are a group or company of high-net-worth individuals. Similar to angel investors, VCs invest in businesses with a solid potential for growth over time but also require an active role in the operations of the business. They also require an exit strategy, making this mode of smart business funding suitable for businesses that plan on going public or selling in the future.
As you can see, startups have several different options when raising capital. The majority of these options are very different from each other so it’s important to do your research and figure out which one suits your business best and will allow it to successfully grow with your goal and vision in mind.
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Central Business Funding
Central Business Funding
Majority of startups fail every year because of the lack of necessary funding. Money or capital is the bloodline of any business. It is the fuel that streamlines the journey from an idea to completion, helping a business generate revenue and grow. Startups have many central business funding options that they can choose from. The most popular options include the following:
Crowdfunding
Crowdfunding is a relatively newer way of funding a startup that has gained a lot of popularity recently. Reg CF crowdfunding is like taking a loan, pre-order, investments or contributions from more than one individual at the same time. The best thing about this method of raising business funds is that it can also generate interest, allowing you to market your project alongside financing.
Crowdfunding is also a boon if you are unsure of whether there will be any demand for your project that you are working on. This process can cut out professional brokers and investors by putting funding in the hands of common people. Furthermore, it also has the potential to attract venture capitalists down the line if a company has a successful campaign.
Angel Investment
Angel investors are wealthy individuals who have an interest to invest in promising startups and businesses. They generally work in groups of networks to collectively review the proposals before making a decision to invest. They can also offer advice or mentoring in addition to capital. It is an alternative form of capital funding that usually occurs in the early stages of growth of a company, with investors expecting about 15-30% equity. Angel investors tend to take more risks in investment for higher returns.
Venture Capital
Venture capital is a professionally managed fund that is invested in companies with a potential for huge growth. Venture capitalists generally invest in a business against equity and exit when there is an acquisition or IPO. VCs offer mentorship, expertise, and act as a litmus test of where the business is going, evaluating it from the scalability and sustainability point of view. A venture capitalist investment may be suitable for fast-growing companies that already have an exit strategy in place.
Business Accelerators/Incubators
Startups can also consider accelerator programs to acquire funds. These programs usually run for a few months and requite time commitment from the startup owners. With the help of business accelerators, not only do you get the necessary business funds but you are also able to make good connections with investors, mentors, and other fellow startups.
Bank Loan
Typically, banks are the first places many business owners and entrepreneurs go for funding. The bank offers two types of business funds. One is funding and the other is working capital loan. Funding from bank involves the usual process of sharing the business plan and the valuation details, as well as project report, based on which the loan is authorized. Working capital loan is the loan required to run one full cycle of revenue generating operations. Hypothecating stocks and debtors usually decide the limit of working capital.
In conclusion, there are several funding options available for startups and early stage businesses. While multiple options make it easier for business owners to get started, responsible entrepreneurs and business owners should ask themselves how much financial aid they actually need.
Best Capital Funding
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Best Capital Funding
With the lack of business history, established credit, and substantial revenue, it can be very challenging for startups to access funding as opposed to established businesses. However, this doesn’t mean that you won’t be able to find capital funding for your project or business. There are several best capital funding options available. Read on to learn about them.
Personal Investment
Your first investor should be yourself when you are starting a business or project. Your personal investment could be your cash or something with collateral on your assets. This proves to bankers and investors that you have a long-term commitment to your project and that you are willing to take risks.
Friends and Relatives
This is the money that you borrow from a spouse, friends, family, relatives, etc. Bankers and investors consider this as “patient capital”, i.e. the money that will be repaid eventually as the profits of your business increase. When borrowing money from friends or relatives, you should be aware that:
• They rarely have much capital.
• A business relationship with them should never be taken lightly.
• They may want to have equity in your business.
Venture Capital
Venture capitalists take an equity position in your company in order to help you carry out a higher-risk, promising project. This involves offering some equity or ownership in your business to a third-party. Apart from this, VCs also expect a good return on their investment. Be sure to look for investors that bring relevant knowledge and experience to your business.
Bank Loans
Bank loans are the most commonly used funding solutions for both small and medium-sized businesses. Since all banks offer different advantages, it’s a good idea to shop around and find the one that meets your specific preferences and needs.
Crowdfunding
Over the years, crowdfunding has become an extremely popular funding solution for startups to raise capital. The primary reason behind it is that crowdfunding doesn’t require winning over investors. Instead, it gains attention for a startup before it is launched and helps you evaluate what type of demand there is for your project/product. You can use Reg CF crowdfunding to fund your startup entirely or use it as a stepping stone to win investment from the bank or venture capitalists.
Angels
Angels or angel investors are usually retired company executives or wealthy individuals who invest directly in startups by others. In exchange for risking their money, angels reserve the right to supervise management practices of the company. This generally involves an assurance of transparency and a seat on the board of directors. To find angel investors, you will have to visit relevant platforms that track them or contact specialized associations.
Business Accelerators
Business accelerators or incubators typically focus on the high-tech sector by offering support for startups and new businesses in various stages of development. Generally, accelerators invite future businesses to share their premises, in addition to their technical, logistical, and administrative resources. The incubation phase can last up to a couple of years. When the project is completed, the business often leaves the accelerator’s premises.
As you can see, there are several funding options available for startups with little to no business history. Be sure to do your research before proceeding and you will be well on your way to finding the best capital funding for your new project or business.
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