Where would you get the money to make your cyber business happen? The answer will depend on the nature of your project, your business model, and your tolerance for risk. For a quick review of possible options, here are 5 models that you can use to fund your startup.
This means you’re using your own money for your business. This could also imply asking for investments from family and friends. A great majority of startups are created using this model, including eBay and Facebook.
The challenge is, can you (or your immediate network) afford to use hard-earned personal funds in putting up your project? And support it for any number of months without guarantee that the business will break-even?
It’s advantage is that you get maximum leeway with your vision without others getting involved or interfering with your direction. The challenge is, can you (or your immediate network) afford to use hard-earned personal funds in putting up your project? And support it for any number of months without guarantee that the business will break-even?
You pitch an idea, and then wait and see if a community will back it up. With online platforms like Kickstarter, it’s easy to make your case to a community and explain why your idea could make an impact.
In exchange for contributing an amount to your funding, you make a deal to deliver anything from a token to an early working product. This model is a great way to test if there’s a market out there for your product.
Bank loans and schemes
One traditional way to get needed funds for your business is to approach a bank or a financial institution. Of course, what you sign up for is a loan. They’ll review your overall capacity to pay back the credit, which can involve asking you for official documents, tax returns, collateral, and the like. Any money they lend you is due an interest.
If you really need cash to expand your project because of an urgent market opportunity, angels are indeed heaven-sent. Typically entrepreneurs themselves who have deep pockets, they’re interested in helping startups that resonate with their own experience or expertise. So grow your network. In exchange for their investment, they would get part ownership or equity of your startup.
Now we’re talking “very” serious business. Venture capitalists pool funds and infuse them to a startup that they think has the potential to hit it big. Your pitch is expected to be highly professional, so prepare your detailed business plans, market projections, and profit models.
Because VCs are very strategic and discerning with their investments, securing funding from them should inspire confidence with your startup. The downside is, since you’re giving VCs control over your startup, they might even set you up for acquisition so that they can quickly recoup their investment.
Weigh the pros and cons of each model, and decide which way to fund your startup would work best for your business.