Most startups founders are troubled by lack of sufficient funds to support their businesses. However, online startups face bigger challenges since most of them need more than one source of funds when they are still young.
This is because some online businesses can take longer to generate sufficient profits. To monetize an online platform, you need lots of patience to build a huge audience, maintain an outstanding growth to attract loyal clients as well as get investors interested. As such, small online startups with a minimal track record might need to consider several funding options to ensure steady growth.
In this article, you’ll learn about the various ways you can get funds to take your online business to the next level.
Bootstrapping
When bootstrapping, you utilize your personal funds to develop a minimum viable product which you present to your target market. Here, the idea is to capitalize on the feedback from the users and fine tune the product. This helps you avoid spending available resources on creating a product that doesn’t address the customer problems as they would like.
If you make some profits with the minimum viable product, the best thing to do is use the cash for further product development. Besides being a low-cost method, bootstrapping is quite efficient with young startups.
The main advantage of this method is that you get the opportunity to perfect the product and gain followers early. The loyal clients can act as a proof of an existing demand for your product which can help you get additional financing from investors.
However, for this method to work, most startup founders have to make sacrifices to allocate both time and resources towards the creation of a working prototype. Therefore, if the product in question is capital intensive, you might want to leverage with other sources of funds.
Crowdfunding
Crowdfunding is normally done through online platforms where several people contribute. When you want to get finances through this method, you have to be willing to give the people involved some sort of reward or equity in the startup.
In a reward-based crowdfunding, individuals who contribute a predetermined amount receive the products or services offered by the startup as a form of incentive. However, you must clearly state why you need the funds even before you receive them. If you are launching a product and you are facing financial difficulties, this is a great option.
Besides getting the necessary funds for developing the product, this method can help you get new customers quickly.
Equity-based crowdfunding is still new, and systems are being implemented to streamline the idea. Although this option comes with multiple regulations, it can help you get sufficient funds if you are willing to play by the rules. Basically, the regulations are meant to protect the interests of naïve investors who form a majority of the financiers.
However, you have to be ready to spend a lot of time running the crowdfunding campaign to realize any success. At the same time, you need to watch out for overfunding since it tends to put excess pressure on your business which new startups are not ready to handle.
Syndicates and angel investors
An angel investor is an individual financier to a startup, and they are distinct from venture capitalists in that they are not involved with the business and they offer smaller sums of money. However, this method is evolving, and it’s now common to come across lead angels who make the initial investment then attract a series of other investors to the business.
If you find a good angel investor, you’ll benefit from both money and expertise, but you won’t have to give up much control of the business which is the case with venture capital. However, there is stiff competition for angel investors, and your idea has to be unique to catch their attention.
Networking is the key to success in getting the right angel investor. The good thing is that angels are willing to invest in you as well as the products and they don’t expect much return for their money.
Venture capitalists
Basically, venture capitalists are several investors who have pooled their resources to form an investment firm. Here, you receive the funding debt free, but in return, you have to give them some equity in your startup. Also, most of them will take an active role in your business.
As such, it’s quite important to define how much control you are willing to give away before approaching venture capitalists. Most VCs expect high returns for their money and most new businesses can’t guarantee a return of about 10 times in the first several years of business.
Most VCs have several investors who fund them, and they have to account for the money spent. As such, they find it critical to have some control over the business operations to safeguard their interests.
Personal loan
When most startups are young, it’s normal to lack the necessary credit records that are critical to getting a loan from most lenders. As such, most founders turn to personal loans no hard credit check to help keep their business afloat.
Basically, you have several options that may include credit cards, installment loans, and personal line of credit. However, it’s important to ensure that you only borrow what you can afford to handle otherwise this can taint your credit ratings.
Incubators
When you have a superb business idea, but you lack both funds and business knowledge, this can be a good option. Basically, a business incubator provides the necessary guidance and support to young and volatile startups.
Most incubators are owned by universities, venture capitalists, and governments with a sole aim of nurturing vulnerable businesses. The main services provided include networking, financing, marketing, and necessary infrastructure.
To join any incubation program, you need to complete a long application and vetting process. While different incubators have different qualification requirements, most of them give priority to entrepreneurs who can demonstrate a commitment to success. As such, competition can be stiff, but you can polish your idea to improve the success rate.
Final words
Unless you come from a background with tons of cash, securing sufficient funds to start a business isn’t an easy task. If you are a diligent businessperson, you have to deeply consider the most appropriate source of funds for your business. Given the nature of online businesses, you need something that gives you more flexibility without charging too much for the funds.
However, there is no need to limit yourself when options are scarce. Besides, it’s not uncommon to find that you still require some additional funds even after your initial funding is complete.
