Getting funds is usually the last step before taking a business to the world. After you have brainstormed and developed a work plan and strategy, you have to get money to push the company; otherwise, it remains in your head. Funding itself is essential; where you get the funds also plays a significant role in the success of your startup, especially if it’s an online business.
The good thing about online startups is that you may not need so much financial capital since you may not need physical structures or employees at the start. For instance, Taboola, founded in Israel by Adam Singolda and maybe a few partners, has grown into one of the best content marketing platforms today, with over 14 offices. That should inspire you to start yours too.
The downside to online startups is that many people may not see your potential or want to invest. Even though it’s the 21st century and internet-aided businesses are flourishing, it takes guts to convince potential investors. We’ve put together an article to help you get funds for your online startup and, beyond that, what type of funding is right for your kind of business.
Best Ways to Get Funding For An Online Business
Getting funding for an online startup can be terrifying and difficult. In this article, we look at ten ways to get the money you need to launch your online business.
Some of these strategies may take time, and some may only give you a certain amount of money. Others combine multiple strategies to best fit your needs. These strategies come from interviews with business experts, investors, and entrepreneurs. They are ranked in order of security, but that doesn’t mean it is smart to skip over one because it feels low-risk.
1. Personal Savings
Don’t save money just for rainy days; save it for the businesses you’ll be doing in the future. Your savings should be the first funding your business gets, and we’re not just saying it because it sounds nice. It doesn’t come with debts well, except you choose to see it as a debt you owe yourself.
Besides that, you’re debtless and don’t have to sell equities. The money is yours, so you should trust yourself to stake your savings on a business you cannot guarantee will succeed. Self Funding or bootstrapping is a reliable and less risky method for startups to fund their business.
You’re the first to take a chance on your business in bootstrapping. It prepares you for the other tough decisions you’ll be making as your business grows. Do you believe in your ideas? Is it worth your life savings? If you’re convinced, you’ve already crossed a hurdle in your business.
You can’t convince someone else to invest in your business when you haven’t invested any money. This is why self-funding is essential. Pay the first price, and if it’s not enough, you can go ahead and try other means to get funding for your startup.
Don’t doubt how far you can go with bootstrapping. Coca-Cola started from there, and look at them now. Bootstrapping is perfect for small startups that don’t require much capital. Bootstrapping is not for you if your business needs a lot of money to get off the ground.
2. Loans From Family And Friends
If your savings can’t fund your business, a loan can. We recommend you get a loan from family members and friends because they may be more lenient with the interest rate. Support is vital to look out for when getting loans from family or friends.
If your business succeeds, you’ll need all the help you can get from your inner circle. The support doesn’t end with words of encouragement; it stretches to their pockets. The good thing here is that you don’t need formalities of filling out forms and trying to convince people you won’t run with their money. Pitching your business idea to your family or friends shouldn’t be difficult.
If you’ve convinced yourself that you’re on track, your inner circle is the next set of people you should pitch to. This is the part most entrepreneurs take for granted, which is wrong. If you can’t share the idea behind your business, and your short and long-term business plans with your friends, you may never be able to pitch to anyone.
How do you intend to get a loan from them if you can’t sell yourself? Tell your friends what your startup is about and which problem you aim to solve. If they are supportive, getting a loan shouldn’t be difficult. Plus, they won’t be on your neck or monitoring your business every step of the way like investors do.
Loaning can get messy sometimes, don’t deal with unsupportive friends or families. You wouldn’t want any loan pressure from friends at the start of your business. Choose who you get loans from carefully.
3. Pitching Contests
A group of investors usually holds pitching competitions; the reward is business funds. Here, you’ll tell the investors every vital detail about your startup. What is the product like, and what can it do? You must convince them that your idea is worth their money.
Pitching usually lasts for a few minutes, so you’d have to train yourself in little time. If you’ve ever seen the show Shark Tank, you know what happens to entrepreneurs who can’t pitch or whose ideas weren’t good enough. When going for a pitch contest, ensure your business idea is exceptional, and then learn the art of pitching.
When people fail at pitch competitions, it’s not always because their concept is terrible. It could just be that the investors couldn’t understand. This is why you must make your pitches clear and concise. Another point to remember is that a no shouldn’t make you banish the business idea.
You’ll keep Pitching anytime the opportunity presents itself. One day, you’ll find someone ready to invest. Some pitching competitions are free, while some others have a registration fee. Both options are perfect. The goal is to get the money and fund your startup. Pitching contests as a source of fending is like grants; you may have to show up many times until you get one. You should consider raising competition if your startup doesn’t require money immediately.
4. Crowdfunding
As the name says, the crowd will fund your startup. Crowdfunding is one of the most popular means to raise capital for a new business, but it doesn’t come easy. You must grasp what your product or service is about, the problems it’ll solve, and why people should trust you to bring the solution to life.
Unlike most funding sources, crowdfunding leaves no room for paybacks. The crowd won’t ask you to pay back, but you must ensure the advertised products will come to them. To run a successful crowdfunding campaign, you’ll need an offer.
You’re promising to offer services or products in exchange for money, although the effects aren’t ready yet. Sometimes, you might need a prototype so people know what to expect. Remember that your offer must be authentic, or else no one will bet their money on it.
It would help if you had people who believe in your ideas, every successful business you see today has one. In crowdfunding, you reach out to those people through paid advertising, influencing, and good PR. Any way you can get people’s attention.
If you’re hoping to use their money to launch your business, you must build a strong image so they trust you to deliver. Fix a date for the product’s launch and ensure everyone who paid gets it or is prepared to get a refund. If you’re up for crowdfunding, check out platforms like Kickstarter or Patreon to pitch your business.
If you can convince yourself that your business is worth the funding, you should be able to raise it to the crowd. If you make them an excellent offer, they’ll help you get the funds you need.
5. Angel Investing
Angel investors are the angels that believe in your brand and are willing to stake their money in it in exchange for ownership equity. Unlike in crowdfunding, angel investors are private or groups of investors. They specialize in funding startup businesses.
They’re legally allowed to invest in people’s companies, unlike crowdfunding, where just anybody can fund a business—ever heard of the Shark Tank? If you’re seeking angel investors, you have to pitch your ideas aggressively like the entrepreneurs on that show.
Your investors are all successful entrepreneurs; you must give them more than enough reasons to stake their money in your ideas. Angel investments are a reliable way to get significant funding for your business; the investors are affluent. So, if you’ve drawn your budget and it’s running in millions, you should prepare a pitch speech for your investors.
But it would help if you first found the investors. Go to where they’re most likely to be, startup events. Attend such gatherings, establish contact and pitch your ideas when. If you have a rich circle of friends, they might be the angels you need in your business. Alternatively, check out online communities on social media or websites where angel investors are found.
6. Grants
Getting grants for your online startup might be the best idea. You’re not paying back and not selling equities to investors either. It’s like getting free money for your business. Grants could come from the government or individuals, but most online startups get grants from private entities.
In the US, however, profit startups don’t get free grants. Such are reserved for non-profit startups. Small business grants offered by the government could fund your dreams, but you may have to apply for many. You’re not the only one trying to get the grant, and the number of slots is usually limited. If you use one and don’t get it, you reapply.
Usually, you will have to write a business plan, a documented form of what your business is about, and the number of employees you have. Before applying for a grant, confirm that your startup is eligible. The grant sponsors have in mind a specific type of business they want to fund; if your startup isn’t in that category, you are not eligible.
Also, some sponsors only go for growing companies and not startups, so keep an eye out for the grants that apply to you. I must mention that getting a grant isn’t easy; you’ll have to be patient. I suggest you apply for grants while you’re still working on the business structure.
Hopefully, before everything else is ready, you must have gotten one. Grants are a good option for small startups where you won’t have to pay a lot of staff at the start. The money should go into developing the business itself.
7. Venture Capital
Venture capital is quite similar to angel investment in that, in both cases, you’re selling ownership equities to your investors. Venture capital companies are limited liability companies that specialize in seed funding.
They’re professionals in investing, so you’d expect them to be strict. Your business must have a sustainable structure, but for startups, a feasible plan on how your business will be generating revenue and how much. The investors are interested in their returns on investment (ROI).
What you need to attract venture capital firms is a solid product. They won’t invest in your startup if you don’t have a good effect, a ready market for your products, and a convincing business structure that’ll generate high revenue within a few years. If your business takes more than five years to yield ROI, you may not benefit from venture capital.
Tech startups are more likely to benefit from venture capital because they have great potential and generate high revenue within a few years of operation if adequately funded. They grow thanks to the internet and technology, so if your startup is a tech company, you may be the next venture capital investment.
Take your time and build a good product first, then seek venture capital firms. You can meet them at startup pitching events like the shark tank. Remember, your product must be better than your pitch.
8. Incubators and Accelerators
Incubator and accelerator programs are another great way to get funds for your startup. However, they offer different kinds of support. Incubator programs will help you groom your startup. They offer tools, training, networking, and mentorship for up to 5 years.
Incubator programs are not primarily known for funding; they train and prepare you for accelerator programs or other kinds of investment. On your part, you have to listen to what the experts are saying.
You can get funds from accelerator programs if you have a minimum viable product. You must have enough information about the business, enough to attract investors. You can talk about the product’s features, and what problems it’ll solve.
Your product is what attracts accelerators. Accelerator programs run between 3 and 6 months; if the sponsors like your idea, they’ll fund your business in return for equities. Incubator programs are ideal for startups, especially if you’re a new entrepreneur with zero experience. They’ll groom your business to maturity.
Accelerators are perfect for early growth businesses with an existing product. They invest in scalable companies and can generate revenue within 3 and 8 months. At the application stage, the investors want to know about your startup’s idea, market, traction, team, and other relevant information about the business. An incubator program will be a good idea if you want long-term business support.
9. Small Business Administrations (SBA)
You can fund your startup with an SBA loan, but you must know that SBA loans are tailored for different businesses. For startups, you should use an SBA microloan or the SBA community advantage loan. The SBA microloan offers startups up to $50,000 with a loan period of 8 years.
For the community advantage loans, you can get up to $250000 with a 10-year loan maturity period. To qualify, you must have an existing business not older than three years. In both cases, community-based lenders offer the loan, and you must meet their requirements.
SBA loans are not like the other sources of funds; they’re given mainly by the government, so your records must be clean. You’ll provide information like your personal tax, collaterals, and cash flow projections. Getting an SBA loan requires commitment and discipline; you have to pay back the money you’re borrowing, so if you’re a chronic debtor, don’t bother.
Before you apply for an SBA loan, write out your business plan. Draw a budget, and get the figures right, so you know exactly how much your startup needs. Find a lender with a reasonable offer. You know how much you need; find lenders who can make that offer at affordable rates.
The SBA’s lender match tool will connect you with lenders. But watch out for their eligibility criteria as well. Draft your loan application and apply. Remember that you’ll pay a down payment of about 10% before getting a loan.
10. Bank Loans
As a startup, a bank loan should be your last option when looking for funds. Getting a loan at the early stages of your business is not ideal. The truth is that most banks don’t give loans to startups due to the level of risk involved.
The banks that give out loans to new businesses have stringent lending standards that your business may not qualify for. Banks require collaterals and, in some cases, a down payment. There’s no guarantee your startup will succeed and generate the revenue to pay back such loans—one reason banks don’t give loans to startups. Existing businesses with assets benefit more from bank loans and not startups.
What Type Of Funding Does My Business Need?
Most businesses fail due to poor funding, but the fund source is also significant. Apart from crowdfunding and bootstrapping, every other source of business funds will cost you debt or equities. Venture capital, angel investment, and accelerators take equities while bank loans put you in debt. If your business is starting, you shouldn’t get a loan. You wouldn’t want to owe within your first year in business. Instead, plan and execute a top-notch crowdfunding campaign to raise funds for your startup. If your company has been running for up to 3 years, you can get a loan for expansion.
Venture capital and angel investment are excellent for startups with the potential for rapid growth and revenue.
Be confident in your idea and yourself, but try to never seem arrogant or dismissive of others’ opinions. Don’t hesitate to put in the hard work in the early stages of your product development phase, before you even start marketing. Just do it! You never know what could happen unless you try!
Every startup needs proper funding to bring the ideas to life. You could achieve so much with technology for an online business, but you’d still need working capital. Crowdfunding, grants, and bootstrapping can get funds almost free. If your startup needs a lot of funds, venture capital, angel investment, or loans are the correct types of funding for you.
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