In this article, we will cover a few options for entrepreneurs seeking startup funding. As a marketing firm specializing in start-ups, we have researched various ways companies can get startup funding. Please read the entire article to better help you understand the best path forward for your start-up - unless, y’know, you don’t care about succeeding. You do you..
Startups! You know, that thing your uncle brings up every Thanksgiving after a few beers despite having no idea what he’s talking about. No, Tony, we don’t know what an electric quantum rain modulator is, and we don’t think you do, either. About 90% of all startups fail, probably because most people who attempt to create one are like Tony - high-minded and ambitious, but are attempting to tap into a world that they have virtually no claim to.
The best path forward for your new product or service may well be your family, and I'm not talking about groveling to grandma or your D&D buddies for a handout. I'm talking about preparing a solid game plan for how you will develop and market this idea (preparing a pitch deck).
If you're not confident enough in your product to ask for an investment from your peers, you may want to continue developing your idea before moving forward or plan a potential pivot. What’s that? You don’t have any friends or family? No worries!
Now that we've established you're an introverted orphan, let's look at our next option: loans. Loans are my least favorite option for start-ups as they require interest payments even when the idea doesn't generate income.
I highly recommend if you're going to get a loan for startup funding that you do as much research as possible into programs like the SBA loan program or perhaps The National Science Foundations Seed Fund Program.
Either way, research your loans, and don't get caught in a high-interest loan - you'll end up with no house, no friends, no family, and will be in massive debt with no company to boot.
So I successfully deterred you from going into lonely orphan debt! Perfect. Now, again, the Small Business Administration offers loans for small businesses. I know what you're thinking, "but guys, my business idea is like the next Google"!
...cool story, bro. Now before you learn to ball (or bawl), you need to crawl. You're starting a small business. Sorry to burst your bubble! There's nothing wrong with starting out small and taking advantage of your resources. Growth will come with time. Now lets talk about how to get free government money to start a small business.
You can find more information on grants through a cursory Google search. Another great option is looking at the USA.gov grants program. Don't forget, when writing a proposal for a grant, it might be worth hiring a grant writer to dot the t's and cross your eyes (I got that right… right?).
Remember Bruce from the orphanage? The one with the fancy bat suit and the mansion? He's doing great these days and loves to invest in people just like you, especially if you want to fight crime!
You can find private investors all around you. Old bosses, business connections, hell, even Craigslist works! There are people out there who want nothing more than to spend their money on your idea. Find them, ask them, and be honest and say you don't know when you don't know. Investors are there to lend you their knowledge alongside their hard-earned cash. If they believe in you, it's in their best interest to help you succeed.
Now we're on to one of my favorites. Angel investors are individuals who are interested in bringing ideas to life for their values and expertise, or maybe they're just looking to dip their toes into the world of investing.
I may be biased because I happen to lead our sponsorship team for The Seattle Angel Conference, or because I know they will chew you up, spit you out, then pat you on the back and potentially hand you a chunk of cash if you pivot and thank them politely for the abuse you just received.
Angel investors can be found in any major city and there are many ways to coordinate online with groups across the country; even SAC allows attendees from outside of Seattle to virtually compete in their events. Just open Google and search for "angel investors near me".
License Agreements are fantastic. They're probably not what you imagined for startup funding and a few steps ahead of where you are if you're reading this, but many companies are willing to pay you a small amount upfront for a prototype idea of a product or service. A fantastic resource for this is How To License Your Million Dollar Idea by Harvey Reese. It may be an older book, but the information is still valid and highly valuable.
A license agreement is a way of selling your idea to one or more companies for them to use for an agreed-upon time period, while you collect royalties on sales or fees. This might be right for you, especially if you need to get off the ground.
Crowdfunding for startup funding isn't a pipe dream, it's just harder work than most people want to admit. My primary advice: fill out every single box, answer the "who, what, where, when, why, how" for your product, and specify what you would do with the money.
Use the SBA start-up costs calculator and always remember to compensate for the percentage the crowdfunding platform charges as well as the payment processing fees. For instance, Kickstarter can be anywhere from 8-10% depending on the amount you are successfully funded for.
There are dedicated platforms for all types of start-ups. Take Biostart.io for example, a service designed to allow people to raise startup funds for biomedical technology. This is an example of a very risky field, though, so make sure if your start-up is in such a field that you have access to the legal help you’ll need. Kickstarter and Indiegogo are a few other crowdfunding platforms with well established user bases.
A lot of successful crowdfunding projects have adequate funding to produce a campaign for the crowdfunding platform. This early investment can be crucial to developing a successful strategy. Don't be discouraged if you don't succeed the first time, you can always try again.
This one is probably the trickiest to pull off. This involves getting a meeting with a CEO for a company that is already successful in your industry but could benefit from your product or service. Much like a licensing agreement, you would be under contract, but in this case, you would offer ownership of your idea to the company you're attempting to partner with.
Most companies will likely shrug you off, but if you can hold your ground and prove you're the right guy (or gal) for the job, they may very well allow you to partner with them as the lead developer for your idea, offer to help build it, get the startup funding you need. and allow you to retain significant ownership of the idea.
I will not say this again: you WILL need to hire an attorney for this contract. Research the attorney and ask them to provide you with examples of other partnership contracts they've written.
White labeling is much like licensing and partnerships, with the exception of branding. Your idea will be licensed for a fee and the company will not be required to mention your brand or company while they offer your services or products.
White labeling is a very successful tactic and can help you generate startup funding for an established piece of software or other intellectual property.
Whether you realize it or not, many services you use day-to-day are white label services. White labeling is great for generating income, but will not help you establish a brand name or expand your customer list. That said, having the capital to grow your brand can make all the difference.
Now that we've covered some ways to generate startup funding, go make us proud! Use your best judgment to decide which form of funding will fit your needs. Spread your wings and fly, young ones, and if you fall back down to the harsh reality of the start-up world, give us a call and we can help you get on the right track.