Running a start-up is not for the faint of heart. You need wit, smarts, and a rock star idea. Most important, you need to be able to generate funding to bring your idea to consumers. Securing funding is not an easy task, so start by understanding the needs of both lenders and investors.
Traditional lenders like banks tend to loan funds for a period of time, and want to get repaid through a return on their investment. To do this, they need to secure their loan on an asset in the event of any missed payment deadlines, and they may also need a personal guarantee when freshly starting out.
For venture capitalists, they look at funding your startup from a completely different perspective. They look for businesses that can grow and become huge like Airbnb which are typically in the communications, biotechnology, or information technology sectors. Investors seek high returns which are actualized when your startup goes public and its stock value explodes (hopefully!). To venture capitalists, an exit strategy is important.
Angel investors tend to help startups that are just becoming established. In exchange for their investment, they tend to seek a seat on the Board of Directors, and want the ability to oversee the company’s management.
Business or local economic development incubators are also a great source for funding with the intent to stimulate job creation, and are largely focused in the high-tech sector. These incubators commonly invite companies to share in their physical location, along with administration, logistical, and technical resources. Once the product is developed, these startups usually leave the incubator to venture out on their own. This incubation phase can last up to two years.
Beyond this list, there are also many other ways to finance your business, and investors come in all shapes and sizes. To ensure your success, identify the needs of the investor and lender from whom you’re seeking funding.