The startup business fairytale is: you have an idea, someone gives you a pile of cash to turn your idea into a product, you create the product and then the product sells – generating an enormous pile of cash.
That’s the one in a million dream come true, but for everyone else there are the modern approaches to raising money to get your company started. Most startups today are not going to be launched by the luxury of venture capital. It is estimated that only one or two out of every hundred startup ventures will be financed by venture capitalists. Of course if enough venture capital is available, then by all means use it to launch your startup. But let’s deal with what about 99 out of 100 startups are doing instead to fund their launch…
1) Fund it yourself
The model is to start small and then use profits to expand the business over time as it flourishes and grows.
Not all startups require a huge amount of money to simply get started. The smaller and simpler the start, the less money required to simply get the business started.
If the price to startup is small, then using some or all of your own disposable income to launch the business might just be the way to go. If you are patient and are providing goods/services that people want/need/desire, then money will inevitably flow your way. By continuing to reinvest the profits from your business to expand your business, you gradually create the potential for a financially sound of making money.
2) People you know
Again, if you are truly providing goods/services that people want/need/desire, then the business will make money. If you would patronize your own business, then that is a good sign that others might as well. Sharing your business idea with people you know (most likely friends/family) in hopes of raising just enough money to start small might prove successful.
3) Business loans
Not only is qualifying for a business loan most likely just another fairytale, but it is also generally a bad idea as a matter of principle because (to quote financial advisor Dave Ramsey) “the borrower is slave to the lender.” Being in debt opens up the logical possibility of going bankrupt if things don’t work out. (The same applies to using credit cards, even if they are small-business credit cards.]
The principle behind crowdfunding is simple: connect online with a large number of people who want to financially help you to launch your business. Because the initial business startup costs are spread over so many people, a relatively smaller investment is needed from the many (as compared to the much bigger amount of venture capital that would be have to be asked of just one or a few venture capitalists to fund the same startup business).
For a small initial investment people can feel good about trying to do their part toward seeing you manifest your dream project/invention/product/business (regardless of whether or not it works out or is successful). It’s really a win-win arrangement.
In practice, Indiegogo (www.indiegogo.com) is really the go-to website for trying to obtain crowdfunding for the following reasons:
* The other big name in online crowdfunding, Kickstarter, is an all or nothing fundraiser – meaning if a Kickstarter project doesn’t reach its financial target, then all of the crowdfunded money is refunded. However Indiegogo lets people raising money keep the funds even if their financial goal is not met.
* Indiegogo contributions flow right into the accounts as they are contributed by backers.
* Indiegogo does not have a $10,000 maximum.
* Indiegogo is international.
* (Indiegogo might be more lax on what sort of people and projects are allowed funding).