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For entrepreneurs, launching a recent startup is an exciting experience. This is what we live for. One of the biggest hurdles when starting a recent enterprise is ensuring the company has enough financial resources to not only keep the doors open, but also invest in future growth. Unfortunately, almost 40% of firms fail because they ran out of money.
Without adequate financing, startups are unable to invest in the appropriate technology, equipment, product development and other resources needed to grow. For this reason, entrepreneurs must have a strategy in place to secure the financing needed to unlock their company’s full potential.
Traditionally, most small business owners finance their startup in three ways – personal funds, loans from friends or family, or a bank loan. While these are good options, there are many other effective ways to obtain financing in today’s business world.
1. Venture capital
Venture capital seems to be one of the hottest buzzwords in the startup world – and for good reason. In addition to injecting money into a business, enterprise capital often involves strategic guidance and industry connections. The challenge is that signing a VC deal is extremely difficult. Just 5 out of 10,000 startups will effectively secure financing for the project. Entrepreneurs will have to exhibit rigorous due diligence, hand over partial ownership and meet high growth expectations.
2. Government subsidies and incentives
There is nothing higher than free money for an entrepreneur. To encourage business growth in their area, many state, local, and federal agencies offer grants, incentives, or tax breaks to businesses that meet certain criteria, comparable to operating in a specific industry. Securing government financing could be time-consuming and come with strings attached, so entrepreneurs should rigorously consider their options before applying for government financing.
3. Strategic partnerships
Financial resources do not all the time have to be in the form of cash. Forming a strategic partnership with a complementary startup can speed up growth by providing access to a pool of shared resources, expertise and market reach. The right strategic partnership can enable an entrepreneur to speed up growth without burdening the company financially. For a partnership to work, each entities must work closely together to be sure that their goals, values and expectations are aligned.
4. Income Sharing Agreements (ISAs)
The drawback of raising capital through traditional debt financing is that it requires the company to accrue debt with interest. To avoid over-leveraging a business, ISAs offer an modern alternative. Under this model, investors provide financing in exchange for a percentage of the startup’s future revenues. While this provides flexibility and allows investors and entrepreneurs to share incentives, ISAs can include strict milestones that should be achieved inside specific timeframes.
5. Crowdfunding
Crowdfunding is a approach to financing a company or enterprise by receiving small amounts of cash from a large number of people that consider in the project. While crowdfunding could be an effective way to raise capital, it’ll require a company to communicate its brand through compelling storytelling, strategic marketing and aggressive promotion.
In addition to financial resources, crowdfunding can even help a company build an enthusiastic and loyal community around the company’s products and services. It can even concurrently see if there is market demand for your organization early in the startup process.
6. Blockchain-based financing
Blockchain technology has opened up recent opportunities for fundraising, including tokenization and decentralized finance (DeFi). These modern approaches enable startups to access capital in a decentralized and transparent manner, separate from the traditional banking sector. It’s necessary for entrepreneurs to keep an eye on this trend because the regulatory landscape is continuously changing and blockchain-based financing comes with inherent risks.
Securing the funds your small business needs can take a lot of time and effort. By exploring a range of financing strategies – from enterprise capital to blockchain financing – entrepreneurs can optimize their possibilities of success. There are also pros and cons to consider with each of those options. If possible, it is smart to adopt a financing diversification strategy to mitigate or reduce potential risks. As you start your entrepreneurial journey, you could want to consider looking for guidance from a strategic business coach who will allow you to understand the nuances of startup financing and lead your enterprise to success.