One of the main fears that any entrepreneur faces is the possibility of running out of funding for their project at some point. For this reason, if you have a startup you should know about how and where you can get funding, as well as what are the best options for you depending on the phase in which your project is.
At The Startup CFO we have written this article with the aim of presenting you the three main types of fundraising for startups (private, public or bank loan), as well as some tips to face this process successfully.
You must take into account mainly three aspects when obtaining private financing:
- Prepare a good pitch to convince investors.
- Prepare a business plan that demonstrates the viability of your startup in the long term.
- Present the financial strategy of your startup. Investors want to know what they will be up against before investing in it.
A network of contacts who can introduce you to these investors can give your project a lot of confidence and credibility. If you don’t, it may be a good idea to contact specialists in this type of fundraising who have experience in the sector.
Here are the three most common private funding channels that you can use.
a) Family, Friends and Fools (FFF)
When you start in the entrepreneurship world , you don’t normally know the scope of your project. So getting someone who doesn’t know you to trust your project can become a complicated task.
For this reason, we normally resort to our own funding or to those who already know us, that is, Family, Friends and Fools (FFF), people who have confidence in us and who see us capable of carrying out our project.
The amount of money that is usually obtained through this way is usually up to € 50,000 and the great advantage is that the process is usually very fast.
But one of the main drawbacks is that you must be careful not to affect your personal relationships with them in case things go wrong.
b) Venture Capital
Venture capital funds are companies that usually invest in fast-growing tech companies that need to be financed to consolidate in the market or expand to other countries.
They normally provide funding in exchange for shares, sometimes in the form of convertible loans, seeking to have some decision-making power in future investment rounds.
c) Business Angels
Business angels are usually businessmen or former entrepreneurs with a true passion for the entrepreneurship world who seek to invest in startups with a high potential in the medium term.
They tend to have great prestige in their sector, which generates a lot of credibility in the startup in which they invest. Sometimes several business angels can invest together in order to minimize investment risks.
Today, there are many public aids that a startup can request depending on the stage in which it is.
This type of fundraising is very useful both to make your project grow in the initial stages, and to promote it in more advanced phases.
When applying to them, you must make sure whether or not you meet the requirements to do so.
ENISA’s participatory loans, in any of its three lines of fundraising, are one of the first sources of financing that entrepreneurs turn to in Spain.
They do not require guarantees or personal endorsements and in order to request it, you must meet these requirements:
- Be an SME (PYME) or startup domiciled in Spain.
- Be an innovative project.
- Have had a recent private funding from the founders or other investors.
If you want more information, we recommend you read the article we wrote a few weeks ago.
This grant is intended for recently created startups that have a technological project with great projection.
Granted by the Center for Technological and Industrial Development (CDTI), it seeks to help consolidate Spanish technology-based startups through a non-refundable grant of up to € 250,000 per beneficiary.
To be suitable, you must have a technology startup with between 6 and 36 months of life, a minimum registered capital of € 20,000 and present an R&D plan that represents a great challenge in your sector in the medium term.
c) EIC Accelerator
EIC Accelerator is a European Union research and innovation program that seeks to finance highly innovative research and technological development activities.
This program offers different types of assistance, including the SME Instrument and Fast Track to Innovation (FTI).
You can see more information about this program on its official website.
Getting funding for your startup through a bank loan is quite difficult in the initial stages because banks are not willing to take the risk of trusting a startup that does not yet have a consolidated track record.
In addition, it is not highly recommended because the bank will normally ask you for personal guarantees as an entrepreneur. Something that is due to the high percentage of startups that fail the initial phases.
However, if your startup is in a more advanced phase where you have recurring revenue and you have already obtained substantial private funding before, using a bank loan is a very good option to complement an investment round.
When your startup is already in this phase, it is usually a good time to negotiate better terms with the banks and they will probably not ask for these personal guarantees.
If your startup has already consolidated and you have predictable growth, granting credit will be more than feasible for your startup.
Do you need help when applying for financing for your startup?
At The Startup CFO we help startups to obtain financing through private investors, public aid or bank loans. We involve ourselves in all phases, from the business plan development to the negotiation with potential investors. In addition, we only charge if we get funding for your company, so the risk you run working with us is minimal.
Whether you need more information about how we can help you or if you have already decided that you want to work with us, we invite you to contact us at firstname.lastname@example.org.
We hope this post has been helpful to you.