All startups are faced with a heap of challenges, and these challenges increase daily. Some of these challenges are; hiring of inexperienced workers, lack of governmental support, competition from the authority companies (i.e companies that have been in the same business for long), lack of proper funding, lack of customers or audience, inability to absorb losses and many more.
These challenges are not enough reasons to quit and give up but rather they should be seen as a stepping stone to success. In this article we will be discussing the solution to startups inability to get proper funding.
The major challenges startups face is the inability to get proper funding and capital which is a necessity for every business growth, the growth of a startup mostly and will always rely on its ability to get funded. However this is difficult for startups due to different reasons like - lack of relationships with major investors, absence of bank and financial body support and inability to express the vision of the startup.
What are the solutions to startups not being properly funded? Who should be responsible for the funding of startups and how can startups with no funds get properly funded to foster growth? The solutions discussed below will give a clear insight on how to navigate getting funded. Keep in mind there have been many startups and there will be many startups, which means the solutions are not “a walk in the park” but rather ideas that still need to be contented for.
Funding Challenges Faced by Startups
There are a lot of challenges faced by startups when it comes to funding but let's talk about seven (7) of these challenges now.
- Not knowing the exact amount to request for; even when faced with the opportunity to get funded most startups are met with the dilemma of how much they should request for.
Most times startups don't want to sound too greedy and then go ahead and request for a very ridiculous price, while other startups overestimate themselves and request for an amount far above what they're worth, knowing the exact amount to request is crucial.
2. Inability to communicate your vision; If an idea isn't properly explained, there would be no interest in investing, A lot of startups lack the ability to convince investors on why they should invest.
3. Lack of right network; The right circle, network and can be a determinant factor in getting funded. Many startups and there founder due to insecurity, inferiority complex and imposters syndrome avoid networking with the right people who has the capacity to fund them.
4. Government and bank policy; The most affected party by government, tax and banking policies are startups, the odds are stacked against startups. The requirements from the government and banks are something startups do not have.
5. Unscalable startups; your business idea needs to show that it has the capacity to grow. Every unscalable business is avoided by investors. Your startup must have the capacity to increase profit without increasing the cost of operation so therefore create a scalable business.
6. Choosing the right funding option; while startups might be desperate to get funded, loan sharks must be avoided a lot of so-called investors are looking to rip the gain off startups.
7. Lavish behaviors; a startup that spends lavishly will immediately put off intending investors, as he is seen to lack proper fund management's behavior, simply put lack of trust due to exhibited behaviors.
These challenges go on and on, but are still not enough reason to quit. As they are just hurdles that are meant to be jumped, This brings us to the solutions on how to overcome these funding issues for startups.
We are well aware that insufficient capital can stop the growth of even the most promising startups, let's explore practical steps to be taken in other to secure proper funding for startups.
How Startups Can Get Proper Funding
Let's discuss how startups can get investors, loans, support and business grant;
- Angel investors
Angel investors are individuals who use their personal money to invest in startups, Angel investors may offer to mentor and train you, and their form of payment is mostly equity or debt. They mostly put in money as a one time investment or a continuous process but are usually not affiliated with any bank or government body's Angel investors are divided into 3;
- Lead investor
- Co investor
- Syndicate
Lead investors are the early investors who funded the business initially. Co investor mainly invest alongside lead investors. While syndicates are more than one person coming together to invest their funds.
You can get an angel investors in an online forum like gust, Angel capital investors, Angelist, angel forum, angel investment network and many more.
2. Venture Capitalist
Venture Capitalists are firms that help startups with funds, Venture Capitalists target startups that have potential to “blow up”, They usually invest after tracking the performance of a startup over time.
Venture firms invest a lot of money than most funding sources.
Venture Capitalist can be found mostly in an industry events and also social medias like Twitter and LinkedIn, sending direct email can also be a great way to get venture capitalist to invest.
3. Crowdfunding
Crowdfunding is basically raising capital from a large number of people who are interested in the product, service or company.
crowdfunding is a form of crowdsourcing and its a very good alternative for raising capital
Crowdfunding platforms are popular now and anyone with access to internet can jump on it, they include GoFundMe, fundable, Kickstarter, Patreon, mighty cause and crowdcube.
4. Friends and family
Friends and family are great source of initial funding as you could get them to raise capital for you due to emotional attachment, explain your visions to them in a clear and concise manner, make them feel like they are a part of a success story.
5. Small business administration
The small business loan although limited to U.S is a loan administration that supports particularly small businesses and startups, They are preferable to loan sharks due to their low interest rate and flexibility.
6. Government grants and programs
Government in every country gives small businesses funds from time to time this is done at every level, And it involves just filling a form or survey online, however beware of scams the government will never request money from you before giving you grants. Government grant with due diligence can be applied for online.
7. Business competitions and pitch event
Organizations and corporations create programmes and pitch opportunities for startups to present their ideas, this gives them the opportunity to make more than money but also create awareness that attracts funds and other investors, examples of these are shark tanks, startup world cup, arch grant,tech crunch disrupt, rise business plan competition and many more.
8. Corporate partnerships
Find a company doing something similar to your startup and even at the risk of being acquired create a legal partnership with them, while you get funding, they get your support.Connect with established authorities and gain both funding and experience.
9. Bootstrapping
Bootstrapping is mainly funding your startup from your personal finance without external support, this would mostly make you do other jobs to raise money for your startups, an easy way is to convert your startup to a freelance agency and save up to invest back in it.
10. Advance payment
Advance payment is having your audience or customers pay in advance for your product or service, create a list of potential customers and make them book for your product or service ahead.
Read Also: 7 Big Things a Startup Must Have to Succeed
In Conclusion, Startup challenges are not limited to funding but keeping yourself and your team focused is enough to get you through, while the journey might not be rosy, the rewards sure are. Remember before contacting any investor, or loan company there are objectives you need to fulfill first such as;
- Position yourself both online and offline the basic is to have a website and good graphics
- Writing a business plan for your business
- Calculating how much you want to request
- Making sure your business is scalable
- Create a repayment plan
- Checking the financial and growth health of your startups
- Cutting down unnecessary expense
- Take advice from mentors
- Avoid overreaching
This alone should cover the basics of overcoming challenges startups face when they are in need of funding. Always remember the goal of every business is to make profit and serve the audience.
Whether the funding is coming from an angel investor or a venture capitalist or even from family and friends, business money is always different from your personal money, and if a startup must grow then the financial health must also grow.
Understand that there are risks in taking money from external sources to fund your business as a lot of lenders want to either take over your startup or have the “lion share”, Always have a good legal agreement and do your due diligence. Wishing you all the best in your business endeavours. Let us know your opinion in the comment section and don't forget to share this post for others to gain value.
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