The 7 Ways Startups Get Funding to Work Their Businesses

 

'How do startups get funding?' It is a common question that many may ask as we live in a fast-growing digital age. In fact, startups aren't massive companies, yet some successfully become well-known in the industry.

You may have seen social media videos about Uber, Airbnb, and Lyft. These are a few examples of profitable startup companies in the world. They were loaded with a fantastic amount of funding in the initial year. 

In 2014, Uber received about $2 billion in investments. Meanwhile, Airbnb and Lyft collected $500 million and $250 million, respectively. With hefty bucks, they managed to generate weekly revenues worth millions of dollars.

Starting a startup company is undoubtedly a challenging feat. If you plan to join the trend, you should know how to get funding. Keep reading this article to discover the essentials.

What is a Startup Company?

A startup is a company focusing on innovation and disruption in a specific industry. It is designed to be a fast-growing business with unique products, services, or solutions that many are willing to pay for.

The majority of startup companies employ the latest technology advancements and digital environment. For example, many start companies use AI tools, machine learning, or blockchain technology to power their solution.

Some main characteristics of a startup company include the following:

• Innovators in the industry: Many startups bring fresh ideas to answer target audience pain points, resulting in new digital innovations.

• Risk-taker companies: Startups are often risk-takers as they battle established industries and launch their products to the market.

• Focus on customer needs and satisfaction: Startup companies focus on answering and satisfying customers' needs by giving new solutions to improve their quality of life. 

• Fast-paced and fast-growing companies: There's nothing as fast-paced as startups. They aim to scale quickly by improving and expanding their products to solve more problems.

• Prioritize lean operations: Many startups have limited resources, especially when it comes to financial aid. So they have to be cost-conscious and efficient in executing projects.

• Commonly consist of a small team: Rather than a considerable number of employees, startup companies typically include a small, dedicated team that can move quickly and efficiently.

How Do Startups Get Funding?

Starting a startup company is not plain sailing, especially when it comes to generating funding and maintaining financial flow. 38% of startups went out of business because they failed to run out of cash.

The amount of money to develop a startup varies depending on your product. As funding matters for startup companies, below we've compiled common ways they can generate a budget to work the business. 

#1. Bootstrapping

In simpler terms, bootstrapping is self-funding. It also refers to when someone starts a startup with personal savings or little support from family or friends.

You may also find a term that says "pulling oneself up by one's own bootstraps." It means that someone is starting a business from scratch using their personal financial aid.

Bootstrapping startups must maintain cost efficiency and execute their project accurately to generate revenue and avoid wasted funds. Moreover, they must be creative and resourceful to scale and expand the business. 

Another benefit of being bootstrapped is that a company can maintain its independence and have solid control over its decisions.

#2. Family and Friends

Sometimes the easiest way to get funding to start a business is by asking for help from your closest ones: family and friends. Persuading family members probably is much simpler than blogger outreach, it’s a classic way to make your dream come true.

They are often willing to support your effort. However, it may be necessary to get legal advice for both parties, especially if you take the money as a loan. Legal advice and paper agreements can provide win-win solutions and avoid conflict.

Always consider the downside when you get a loan from family and friends. If an issue arises, you may lose friends and make sour relationships with your family.

#3. Bank and Other Loans

Getting a bank loan is another option if you need more financial aid. You can find many options of loans to choose from that aim to support new and small enterprises. 

In order for a bank to grant your request, it requires a lot of documentation, including your detailed business plan. A bank also needs to check your track records and may fail to give you the loan if they notice any bad record.

If you plan to take a bank loan, check the interest rates carefully. You can choose banks that offer lower interest rates. Or, you can take a government-support or SBA loan specifically designed to fund small businesses.

#4. Crowdfunding

You can leverage the internet to gather funds for your startup. It's a popular way to raise financial aid using the "pre-order" system. 

Kickstarter and Indiegogo are some examples of crowdfunding platforms that you can try. Provide your business model plan and a product prototype to pull in funders. 

A video describing your timelines, goals, and milestones can also persuade people. Those interested in your product can pre-order it through the platform, and you can use the money to make the product come to life.

#5. Incubators and Accelerators

Many use the term "incubator" and "accelerator" interchangeably, while they have different functions. Incubators support and nurture startups from the early stages to becoming established businesses. 

On the other hand, accelerators help startups to scale their operations to thrive and compete among others. Participating in this program can build connections with investors, mentors, and other startups.

Incubators and accelerators is a program run by government firms, universities, and VCs. It offers networking, infrastructure, marketing, and financial aid to help small and new enterprises.

#6. Angel Investor

If you're confident about your startup business, you can reach out to angel investors to get financial aid. They are individuals or groups that provide funds to startups with high potential in the market.

However, pitching to angel investors is a challenging feat. You must provide a spotless and well-structured business plan and a concept proof before reaching out to AngelList investors in your business niche.

#7. Government Programs

The government commonly provides several programs to support startup companies. Some of the examples include Small Business Innovation (SBIR), Small Business Technology Transfer (STTR), and Grants.gov.

Each of the programs is highly competitive. So, your proposal and business plan must be flawless to win a place. Moreover, including a clear technology description and your team background can add extra points.

Government programs are commonly time-consuming. It's better to prepare the documents way ahead before the admission dates. Also, allocate sufficient time and resources to join the program.

Takeaway

Funding is vital for startups to get enough resources and execute projects optimally. The above points are some ways startups can get financial aid to work further and make their solutions come to life.

If personal savings aren't enough, taking loans from family, friends, or banks can be an option. But if you're confident with your business plan, it's better to contact angel investors, do crowdfunding, or join a government program.

QnA

1. How to create a flawless business plan to start a startup business?

To create a perfect business plan, you should clearly explain some vital elements. First and foremost, clarify the missions, vision, and values you carry on your startup. 

Moreover, write a company description, explain the company goals and milestones, conduct market analysis, and elaborate on the partnerships and resources.

Not to mention, write a well-structured and comprehensive marketing plan and budget you need to succeed in your business.

2. What are the highest-valued startup companies in the world?

According to a survey, the highest-valued startups in the world are Bytendance, SpaceX, Shein, Stripe, Klarna, Checkout.com, Canva, and Instacart as of 2022.

Bytedance, a Chinese AI company, is valued at $140 billion, while SpaceX is valued at $100,3 billion. Following the two, an apparel startup from China, Shein, is a riser valued at $100.

3. What are the most promising industries to start a startup business?

The blockchain industry has been rising in popularity as it generated the highest increase in funding by 91% in 2020. Moreover, advanced manufacturing and robotics came second with a 70% increase in funding.

Other promising industries in the future are fintech, ag-tech and new food, AI and BD, life sciences, ed tech, cleantech, cybersecurity, and gaming.