Is your aspiration is to have your own business one day? Is so, it’s time to start saving today because most businesses get funded from personal savings.
What are the Startup Funding Options?
- Personal savings and/or credit. In the US, a vast majority of new businesses are bootstrapped from founders savings. On the average, startup founder would put $48,000 from her or his savings into a business. Most financial advisors recommend that people should save at least six months worth of living expenses in cash, so plan to save that amount plus amount that you need to bootstrap your new business.
- Friends and family represent the second most common source of funds for new businesses, with average of $23,000 invested. Because launching a new business is risky, I recommend to all my client entrepreneurs to spend some time writing a business plan to show it to their friends and family before taking the money, so they will know your plan, strategy and timeline to revenue. Level setting everyone’s expectations is important to ensure that your friends remain friends even if the business fails.
- Venture capital is reserved only for high growth startups; less than 0.05% of new businesses receive institutional investment.
- For first time entrepreneurs that are considering raising venture capital round for there startup, we wrote an eBook, Demystifying Venture Capital for First Time Entrepreneurs. Download here:
- Angel investors are increasing their financial contributions into startups and about 1% of high growth startups with scalable business models would earn their support and mentoring.
- Banks are risk averse, so they typically loan to companies with few years of revenue to show for. Having a succinct business plan document that a busy loan officer unfamiliar with your industry can read quickly and understand is they key to a loan approval.
Crowdfunding is growing at tremendous pace, growing several fold year after year. Globally, the amount raised trough variety of crowdfunding platforms has been:
- 2013 — $6.1B
- 2014 — $16.2B
- 2015 — estimates to be $34.4B! Equity crowdfunding (owning startup shares) has been the fastest growing category that will represent almost 40% of the funds raised.