Around 40% of start-ups fail in their beginning phase even after having an innovative plan, proper resources and experienced professionals. The main reason behind this failure is the lack of proper financial funding, which is the most important requirement for the success of a project. Every start-up requires a considerable amount of money to bring their ideas to reality, but getting that amount is a big challenge, especially for new entrepreneurs. In the era of fraud and scams, getting funding is more than just obtaining funds; it is also about obtaining the funds from the right sources. The modern time has blessed us with an array of options to secure funds for innovative projects. This includes a bank loan, an angel investor, a government grant, a company incubator, and many more. However, to secure funding from the most suitable source, it’s important to understand all of them in detail, including their advantages and disadvantages. In this blog, we will present a comprehensive overview of the finest sources of finance for innovative ideas, empowering visionaries to drive development, foster growth, and change the future.
Bootstrapping, also called self-funding, is the simplest way to fund your projects without any debt or equity. For new entrepreneurs, it’s tough to attract a potential funder and get funding easily. However, in bootstrapping, you can use your own savings, money from equity in real estate and other precious collections to fund your projects. If you feel that your own money is not sufficient, asking for additional funding from family or friends is an ideal source which enables you to maintain complete control and ownership. You can even sell or mortgage some assets, like a car, house, gold, etc, to obtain cash for your company or use them as collateral for a bank loan.
Government grants are the best source of funding for entrepreneurs whose projects aim at some kind of social work for the betterment of society. If your project deals in areas like innovation, research and development, environment protection, women empowerment, free or affordable education, NGOs, etc, you can aim for government fundings. These government grants provide funding without any condition of returning the money back. However, you have to meet their strict eligibility criteria, present a proper blueprint of your plan, show budget allocation, describe the long-term goals of a business, and submit your application with the required information. Moreover, if you get the government fundings, you are obliged to use the fund for the stated project and purpose only and have to submit the reports from time to time.
Angel Investors are wealthy people in specific fields who take a keen interest in promising start-ups with the possibility for rapid expansion. They provide equity capital to such promising companies and dedicated entrepreneurs to fund their innovative and progressive projects. Not only money, but they also bring expertise, management knowledge, technical skills and networking opportunities to your company. They become the mentors of these young entrepreneurs and guide them in planning, strategizing and ensuring the success of the projects. In return for funding and expertise, they expect a strong return on investment, either in the form of profits or a stake in the company.
Venture capitalists are rich businessmen who show interest in already established technology-driven, fast-growing businesses that have the potential for rapid growth and high success. Besides funds, these experienced professionals also bring expertise and guidance to the company. In return for their resources, they demand equity in your business via an exit plan, such as listing the company on a public exchange, etc. Obtaining funding from venture capitalists, however, is a risky approach because you have to give up some equity, plus they anticipate a return on investment within a given time frame (e.g. 2-4 years).
Crowdfunding is another unique way to raise money with the help of the public by offering them some equity in your company. In this, you have to share a detailed description, business plan, mission, vision, objectives, etc, of your business and get funding from the interested people. Besides getting funds, this strategy is also helpful for testing market demand, marketing the product, establishing a client base, and obtaining market validation. The information should be posted on crowdfunding platforms such as Rockethub, where small groups of people gather to invest in businesses.
In simple words, debt financing means obtaining money from a third-party source and agreeing to pay the money back within a stipulated time frame along with the interest amount. In this method, you can raise money via bank loans from financial institutions, credit unions, bonds, debentures, business credit cards, term loans, etc. However, in some cases, debt financing also requires collateral as a security for your loan. The lender has the right to seize and sell your collateral property in case you fail to repay the money in a specified time period. Therefore, it is an ideal source of funding for businesses that expect good cash flows, but for others, it is a high-risk idea.
Business incubators are programs that focus on the high-technology sector, including start-ups and innovative ventures. Incubators invite promising enterprises and other start-ups to share their office space along with providing resources, networks, advice, expertise, training programs and mentorship that will help them expand and thrive. These incubators support until the business becomes self-sustaining and can manage industrial manufacturing independently. In return, they can demand a small share of your equity.
Choosing the most suitable funding source to fund your innovative projects is an important decision. It not only funds your project but also ensures its maintenance, growth, and success. The type of funding chosen should align with the project’s specific demands, business risk tolerance, cash flow expectations, and long-term goals. Remember that government grants are the best option for innovative projects that aim for the betterment of society. You just need to present your idea clearly, along with its long-term goals and objectives. Once you get a government grant, your project can get all the required resources and reach heights of success.