Ways of Raising Capital for Startup

Ways of Raising Capital for Startup

There are many ways of raising capital for your startup. You must consider all options and choose the one that best suits your particular venture. Here we provide an overview of seven common ways of funding to help you weigh the pros and cons of each source and make an informed decision.

#1 Bootstrapping

Bootstrapping refers to the practice of funding your project out of your own pocket. This is the ideal way of starting a new venture, as you will not owe anything to anyone in the process. You are in full control over your business, and you alone make decisions. Self-funding shows your dedication, therefore your project is more attractive to investors. However, if you fail, all the hard work you have put into your personal savings will go to waste.

Pros:

  • complete control over your business
  • draws further external investment

Cons:

  • risky; can cost life savings
  • no advice or guidance

#2 Family and friends

Borrowing money from family and friends is another way of raising capital for your business. Relatives and friends base their involvement more on their trust in the business owner rather than the business itself. It is an easy way of funding but it can have a negative impact on the relationships.

Pros:

  • easy funding process
  • flexible payment method

Cons:

  • no advice or guidance
  • can damage relationships

#3 Angel investors

Angel investors are wealthy individuals that are looking to invest their own money. Their role in your project may vary depending on the terms both you and your angel must agree on. Your angel investor may fully trust you with the way you handle the funds and have no involvement in your business. Others, however, may want to participate in decision-making and/or demand a certain share of your profits.

Pros:

  • advice and mentorship from investors
  • flexible business terms

Cons:

  • partial involvement in decision-making
  • shared revenue

#4 Venture capital

A venture capital firm is a group of investors that are looking to multiply their wealth. They are usually not interested in early-stage investment. VC investors do not like to take risks and fund those companies that are already making profit. If they do decide to fund your startup, be ready to give up control to some extent.

Pros:

  • large funding resources
  • guidance and mentorship
  • grant business credibility and open opportunities for further funding and partnerships

Cons:

  • not an early-investment method
  • demand involvement and shared revenue
  • demand a portion of profit when you sell your company

#5 Bank loans

Bank lending is an another investment option. Though banks will not be involved in the decision-making process, you will have to prove that you have a sound business plan, before they are ready to lend you money. This may imply an overwhelming amount of paperwork to be done.

Pros:

  • many options to choose from
  • fast funding process, if you qualify
  • no involvement in the process

Cons:

  • risky, implies debt
  • a lot of paperwork

#6 SBA

Small Business Administration are government bodies that are dedicated to assisting small businesses. SBA helps entrepreneurs raise capital and win government contracts for delivering goods or rendering services.

Pros:

  • Facilitate bank loans

Cons:

  • Strict requirements

#7 Peer-to-peer lending

Peer-to-peer lending is the practice of receiving capital from a large group of independent investors. Traditional peer-to-peer lending involves the use of a crowdfunding platform where entrepreneurs pitch their projects, and both institutional and retail investors can contribute money.

Token sales are a new type of crowdsourcing in the blockchain industry and involves issuing and selling digital tokens. Token sales differentiate based on the type of the token being distributed:

  • ICO (Initial Coin Offering) sells utility tokens that grant access to goods and services to their holders,
  • STO (Security Token Offering) sells security tokens that work like equities, i.e. holders are entitled to a share of revenue.

Pros:

  • network of investors draw additional funding
  • less paperwork
  • many options to choose from

Cons:

  • requires effort and time to collect funding

Bonus info

IPO (Initial Public Offering) is when a company makes its shares available for public purchase on stock markets. This means that retail investors can buy a stake in the company.

Related news

Is Chinese Bitcoin Mining Firm Canaan’s $400M IPO a Desperate Move?

Chinese bitcoin mining hardware maker, Canaan, plans to raise $400 million through public sale of its stocks. But will the IPO ride be smooth or bumpy?  Volatility is usual for bitcoin and crypto market participants. However, traditional stock market traders and investors are used to a bit more stability when it comes to their investments. The $400 Million Bitcoin Mining Firm IPO Canaan Creative is an Hangzhou-based firm, engaged in the business of manufacturing professional industry grade equipment required in large scale bitcoin and cryptocurrency mining activities. The Bitmain rival was originally supposed to conduct its first-ever public stock sale on the 28th of last month. But now fresh reports point out that Canaan Creative is set to go live with its big IPO day on November 20. The intended amount to be raised is a humongous $400 million, but there’s some ambiguity as to how the individual shares will be priced for buyers. Canaan’s stock listing on Nasdaq comes after the firm’s fair share of failed attempts to be listed on other stock exchanges in Hong Kong and mainland China. Rival Bitmain, which also faced a similar fate in Hong Kong, is said to have secretly filed a U.S. IPO as well, sponsored by Deutsche Bank. A Desperate IPO?   It seems Canaan has a boot load of debts to clear off its balance sheet. Additionally, the bitcoin mining manufacturer seems to be running out of funds for research, which is why after it approached Nasdaq in desperation. Many were found to be intrigued by this decision as US restrictions for small Chinese firms are quite large. As for the firm’s net revenue, it is definitely not at the top of its game. According to recent data, the company’s net registered revenue of around $137 million (959 mullion yuan), from 2019 beginning to September, was less than half of what it was during the same period in 2018. Even the bottom line sees a major loss, equal to around 223 million yuan. However, the mining equipment manufacturing firm itself is not completely responsible, as BTC price swings had a large impact, too. According to experts, a bitcoin price rebound might lift demands and allow Canaan to perform better. Also, recovery is also predicted due to a surge in prepayments to Taiwan’s TSMC, which is the firm’s official chipmaker. For now, it can only be said, that the IPO seems like a desperate move. What do you think about Canaan’s IPO plans? Let us know your thoughts in the comments below. Image via Shutterstock The post Is Chinese Bitcoin Mining Firm Canaan’s $400M IPO a Desperate Move? appeared first on Bitcoinist.com.
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