The Four Different Ways to Raise Capital
As the founder of a startup company, business owners find themselves looking to raise funds from friends and family during the early days of business. While they may find some generous people in the beginning, it’s not a sustainable way to build an empire. Other methods of funding are necessary to grow and eventually scale in the future.
Unfortunately, these methods can be expensive. As an alternative, startups need to look closer into the private sector for funding. Business owners can find creative ways to do this and include these funding details in a comprehensive Private Placement Memorandum. In this document, startup founders can disclose all the required information about their company, operations plans and how they’ll raise financing among investors. To further save money, founders can utilize Private Placement Memorandum templates in which they fill in the terms to their specific opportunity versus having a lawyer draft them from scratch. The following funding methods may mean the difference between growing as a company and stalling before they begin:
- Crowdfunding. This kind of funding runs rampant among friends and social media platforms, and that’s because it works. Once small companies have blossomed using platforms like Kickstarter. In fact, Dwarven Forge, a company that creates miniature hand-painted dragons, brought in $8.2 million in only four campaigns.
- Seed funding. Annual programs that work to identify, feature and connect a community to fledgling entrepreneurs can lead to big ideas and even bigger business. Groups like Social Venture Partners (SVP) put startups front and center at their community events, allowing startups to present their value propositions and needs to an engaged, open-minded audience with the appropriate funds or referrals to support them.
- Angel funding. More than half of angel investors — 63 percent — have not only the cash, but the entrepreneurial experience to advise and support startups. Speaking of cash: Angel investors with this experience also write bigger checks, averaging $39,000 versus $28,000 for those without entrepreneurial experience. If it’s a minority or woman-owned company, startups will want to put this front and center as well; men normally receive nine times more equity financing for their companies than women.
- Family Offices. One of the more little-known methods of raising capital, family offices are the extensions of wealthy families looking to make investments. Databases with information on these family offices can be quite lucrative. Startups can foster a long-term financial relationship with a family office that wants to meaningfully stand behind their business as a board member or financial backer.
With these funding methods in mind, startups can build up from their initial funding from their families and friends. Whether they use one or a combination of these funding tactics throughout the beginning of their businesses, helping them grow faster and smarter. This will help startups outline their plans to potential investors in their PPM documents as well, leading to increased credibility and ensuring a prosperous start to their company.
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