Unless you’re going the bootstrapping route, you’ll likely need additional funding to get your business idea off the ground. Web design services, IT resources, supplies, production capital, and marketing material can add up to a significant amount. If you’re on the hunt for seed funding for your startup but you don’t know where to look, here are a few sources to reach out to depending on your situation.
Personal savings and credit
Investing your own money in your business not only provides an initial source of cash, but it can also secure additional funding from financers. Some investors won’t write a check if the individual asking for money doesn’t have their own skin in the game. Dipping into your own savings and line of credit signifies confidence in your idea and is the most common source of startup funding.
Family and friends
The next most frequently used source of funding comes directly from your closest contacts. According to data collected by Fundable, family and friends provide $60 billion of funding each year to startups around the country, about one third of the $185 billion entrepreneurs source from their very own savings and credit. Taking money from family and friends can complicate a relationship, however, so be sure to treat this source of funding like any other. Get everything in writing and make your required payments. "Don't be cavalier about paying the money back," says Mike McKeever, author on several entrepreneurship books. "That kind of attitude could ruin the relationship."
Angel investors are a great source of funding, should you be able to find one and convince him or her of the value in your business idea. Angel investors make 61,900 investments per year at an average of $74,955 according to Fundable, but finding one can be tough. Each month, 565,000 startups are launched in the U.S. Meanwhile, there are 268,160 active angel investors, making it difficult for your business idea to be picked up. If you want to work with an angel investor, a comprehensive business plan that includes exit strategies is vital for approval.
With an average investment size of $5.94 million, venture capital firms tend to live by the motto “go big or go home.” Yet, only 0.05% of startups funded receive their cash from VCs. What’s more, that money doesn’t come cheaply, with most venture capitalists demanding a significant ownership share of the company in exchange for cash – a tough prospect to accept for many entrepreneurs.
Small business loans
Approaching a bank for a small business loan is another option to consider. Be prepared to explain how every dollar of the loan will be spent, as banks require comprehensive financials to make their decision. But before contacting the bank, get in touch with the U.S. Small Business Administration. The SBA offers small business loans, microloans, real estate & equipment loans, as well as disaster loans, usually at low interest rates.
Though there are very few available, government grants do exist. However, they’re typically reserved for companies within industries that work towards the betterment of society as a whole. Examples of such industries include biomedical research, scientific R&D, and environmental conservation. Visit www.grants.gov for more info.