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The ABC's of Startup Funding

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The average startup’s greatest struggle is locating startup funding. You have the idea, product, service and manpower, but when it comes to collecting the cash to push your project to market you need a little help and a lot of patience.

We’ve compiled a few conventional and unconventional (yet, increasingly popular) ways to get you that dough you need to get your startup off the ground.

“A” Find Your Angel Investor

Angel investors exist – think Shark Tank, or if you’re in Canada “the Dragon’s Den”. If you’re like me, you’ve watched one of these shows while you’re on the elliptical at the gym because you don’t have cable… or maybe you have cable and you’re a big Mark Cuban fan. Point is, “angel investors” exist, and are looking for your ideas. Yes, even your cat poncho idea.

Back to Shark Tank, though, you know that the Sharks aren’t just throwing money around because they’re nice people. They have obvious ulterior motives directly related to how lucrative they perceive a product or service to be – but don’t let that curb you, as they are looking for opportunities to invest.

Something some startups do not realize, however, is that in return for your funding, you’ll usually need to hand over a sizable chunk of your company – and if you’re comfortable with that you and your Angel Investor(s) may just have the solution to your funding problem.

So where do you find investors? Your challenge is to seek one who is interested in your type of product or service. You can start by locating your closest SBA of Small Business Administration, they offer something called Small Business Development Centers, which are located around the country, that help entrepreneurs connect with investors. Another place to try is Gust, that lists entrepreneurs and investors.

While I don’t think Mark Cuban would fund a project for Cat Ponchos,  it doesn’t mean he wouldn’t take a chance, but you would need to research what kind of projects he has funded in the past.

“B” Borrow Some Cash

Another thing the SBA can help startups with is locating  loan opportunities near you. There is an array of specialized options available for everything from disaster recovery to microloans. Sometimes choosing this route is easier than trying to secure a bank loan, especially since there are way more restrictions these days.

If you have amazing credit and are financially in an okay place and decide you want to go through a bank for a small business loan, you need to make sure you have more than enough information about your proposed business – including full financials, disclosing how you intend to disperse your loan. A good idea is to start with a small community bank that will have a greater understanding of how your idea will work within the community.

“C” Crowdfunding & Contests

Don’t laugh, but sites like Indiegogo and Kickstarter can provide startups with the funding they need. This route works particularly for the extremely niche crowd (yes, this goes back to Cat Ponchos, my fictional idea). You’ve seen the links asking people for a little bit of cash in return for either that item, or something special to say “thanks for investing”, and crowdfunding has a proven track record of actually working, which is amazing.

The unfortunate part of crowdfunding is that people really need to spread the word in order to make a dent. Interesting products get funded very quickly, when media sites pick up on them – and yes, pet products are becoming increasingly popular (think Kittyo, who had a high profile Kickstarter, featured on major pet periodicals and mailings).  Kittyo was able to reach their goal quickly with their quirky, interesting product that absolutely filled a void for cat owners.

So, unless your business can catch the attention of the of micro funders, it may join the large number of projects that go unfunded on these sites each month.

Another route to take is entering a contest. More and more startups are entering contests that encourage innovation. For example, the Amazon Web Services Start-Up Challenge gives out annual rewards of $50,000, plus and additional $50,000 in AWS credits to small businesses each year. Also, MIT offers of more than $350,000 each year for their pitch, accelerate, and launch contests.

Like crowdfunding, however, the key to your success is to find ways to make your project stand out from the others, eager to receive funding, and to qualify you’ll need to either present your idea in person or pitch it through an essay, so originality and making a splash is key.

 
Topics: Diamond Labs