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Startup Funding

Updated: Sep 2, 2022

startup funding
Elekron - Startup Funding

Sources of Startup Funding

There are many sources of startup funding, so it's no surprise that many new businesses open their doors every year. However, each source of money has its own benefits and drawbacks. For many, it also isn't obvious where to find funding, so a surprising amount of people never get a business idea going due to lack of money.

The most obvious source of startup funding, a bank loan, is also one of the hardest to get. Banks typically like to see credit history, and a new company doesn't have any. Often, this stops the application process before it even starts.

If someone does persist in dealing with a typical bank, the funds will often end up coming from a mortgage on personal property. This carries the obvious risk of losing the house if the business doesn't work out. While plenty of entrepreneurs take this route anyway, many of them do end up on the losing end of the deal.

Because of that risk, those who have looked further will often recommend finding private investors for companies. A "private investor" is typically someone who makes investments out of his or her own personal funds, rather than funds belonging to a banking institution. Often, these investors are more willing to accept the realities of startups, such as a lack of credit history, the inherent riskiness of starting any new business, and more.

Venture capitalists, another type of investors for companies, often share many of the traits of private investors. Some of them even fit into both categories. However, venture capitalists often come together and form firms instead. This way, they have more money available, so they can invest in larger projects.

With both private investors and venture capitalists, the terms of the investment can vary widely. Some individuals are more hands-off, but venture capital firms may add many stipulations to their investments. These stipulations are meant to improve returns for the investors, but they aren't always good for the entrepreneur or the startup company. It is important to read all of the fine print to ensure that the offer is actually a good one. Try to get multiple financing offers so that you can pick and choose.

Some companies make a business out of raising funds for companies. These often don't put up their own money, but instead, help startups with their funding searches. Hiring an expert in raising funds for companies can make the task of getting financing far easier that it otherwise would be. The expert will already know which investors are likely to be interested in your proposal, and save you a lot of time with your funding hunt.

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