The 10 different ways to raise money as a startup
Tuesday, July 5, 2016/
In 2014, ASIC found that 40% of businesses had inadequate cash flow or high-cash use.
It doesn’t matter if you are a startup entrepreneur or a seasoned business veteran, an injection of capital into your business will never go astray.
But getting that injection can, at times, be difficult for small businesses, and it is actually one of the biggest challenges women entrepreneurs can face.
There are so many factors to consider when it comes to what capital-raising ventures are best for you and your business, so why not take a cue from countries such as the United States.
Here are some options successful entrepreneurs in the US have used to raise funds to propel their businesses forward.
1. Direct public offerings (DPOs)
Direct public offerings are used by entrepreneurs in the US to raise funds directly from the investors and don’t have the regulatory restrictions associated with venture capital and bank financing. Usually, the amount of capital raised is smaller than the amount gained through an initial public offering (IPO).
Crowdfunding can be donation-based or investment-based. The main point of difference is that donation crowdfunding doesn’t require the entrepreneur to sacrifice equity in their business, whereas investment crowdfunding does involve exchanging money for securities. Platforms such as Indiegogo, Kickstarter and Ozcrowd are among the most popular vehicles used for this type of capital raising.
3. Private offerings
Private offerings are when equity is offered to a select group of investor. These aren’t your small-time investors – they’re usually large organisations, such as banks and pension funds. Private offerings differ from IPOs, in the sale of securities isn’t available to the public. Fundraising through private equity is how Boost Juice founder Janine Allis grew her business.
4. Pledging future earnings
Social entrepreneurs of separate businesses Kjerstin Erickson, Saul Garlick and Jon Gosier raised money through selling their future lifetime earnings to investors who bought in upfront. Erickson swapped 6% of her future lifetime earnings for $600,000. The other two offered 3% of future earnings for $300,000.
These provide a lump sum to start-ups and small businesses that may not have access to funding. In the US, the Small Business Administration offers a microloan program using 150 approved micro-lenders.
Other options include:
6. Donations, pre-sales and memberships
7. Investment companies and angel investors
8. Government grants and partnerships
9. Family and friends
10. Traditional banks and lenders
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