Where and how to raise money for a startup – this question is asked by people who have an idea and a business plan but are limited in finances. So, this article will consider the best ways to find finances for a startup in 2022.
Startup funding stages
Regardless of the future enterprise’s idea, the project will develop according to a certain pattern. For creating a colony on Mars and for an innovative remedy for fleas, 5 conditional stages of financing are considered characteristic.
- Creator and idea. When a project is just born, it belongs entirely to the creator. The owner invests his strength and means, developing the concept as far as possible. The company, at this stage, costs critically little and is not of interest to investors. Creating value is just getting started.
- Co-founders. Developing a large-scale project alone will not be possible, so a team begins to gather around the founder. The division of shares depends on the opinions of the participants. Often the creator reserves 50%, and the other half is due to the partner or partners who took on the part of the work, but separation in other proportions is also possible. Acquaintances, friends and family can “invest” in a little-known startup. They are allocated shares corresponding to the number of funds contributed.
- Business angels, incubators, and accelerators. The listed investors do not have the largest amounts, but they can help a growing company.
- Venture investors. The goal is to generate income in the short or medium term. Venture investors are interested in large companies that need investments of $500,000. Investments lead to the distribution of shares following the amount of financing.
- IPO. When a company becomes known to the public, it is time to enter the open market. Now anyone can buy shares and feel like a part of a startup. The first investors can increase their share or sell shares in the stock market.
Crowdfunding – the most popular way to raise money for a startup in 2022
More and more young inventors and entrepreneurs are turning to crowdfunding. There are special platforms where sponsors select innovative and promising startups for funding. Due to its simplicity and security, crowdfunding is recognized as one of the most effective mechanisms for attracting investments. Its popularity among ambitious entrepreneurs and creative startups is growing every year. After all, crowdfunding has proven itself very well in the world’s leading countries. To the number of startups implemented, Kickstarter is considered the most crowdfunding platform in the world. It is here that the authors of business ideas can find money to launch their projects. It can be anything: a business, an invention, a social project, a film, or a music disc. As they say – for every product, you can find a buyer.
The platforms operate quite simply and conveniently. In addition, there are several crowdfunding schemes:
- Charitable donation (sponsors give money for the implementation of your startup without obligation)
- Non-financial reward (the sponsor receives a CD or a book if he finances their release, Kickstarter works according to this principle)
- Financing for a certain monetary reward.
The startup author is paid only if the entire amount is collected, but if the full amount is not collected, the funds are returned to the sponsors, and the author of the idea does not receive anything. Therefore, only those projects that are interesting and original should be displayed on such platforms, and then you will have much more chances to obtain the required amount.