4 Effective Ways You Can Raise Capital for Your Start-Up Business

"How to raise capital" is the biggest concern for every start-up enterprise. Every start-up requires sizeble investment before it starts to deliver profits that in turn are utilized for the growth of business. You need funds at every step of your business development.

Check out 4 most reliable sources you can raise capital for your startup for:


Crowd Funding

Though still in its infancy, crowd funding is fast emerging as an effective technique of raising money for start-up enterprises. The concept of crowd funding is evident from its name that refers to the process of funding a project by the personal funds of the people involved.

The process of crowd funding begins from a business proposal. You propose an idea to people who you think would have an interest in your business idea and would be ready to invest in it. The contributors or funders have the flexibility to choose the amount or percentage. It is usually an online process where investors get small amounts of equity in lieu of the funds they contribute to the enterprise.

Crowd funding has gained popularity in the United Stated after it got direct mention in Jumpstart Our Business Startups (JOBS) Act which is aimed at "encouraging funding small businesses in the United States by easing different securities regulations".

Fundable, Indiegogo and Kickstarter are among the best crowd funding websites for small businesses.

Angel Investing

Angel Investing is the process of getting a business funded from Angel Investors who are the affluent individuals eager to invest in start-up business. These investments are usually in lieu of ownership equity or convertible debt. For those unfamiliar with the term, a convertible debt is a bond with a maturity term of over 10 years, which can be converted into shares of the issuing company or cash value.

Google, Twitter, Facebook, and Skype are some renowned names which have received funds from angel investors. In addition to the funds that angel investing provides, the entrepreneur also gets valuable advice and connections that helps in business development. Some prominent angel investing networks include Tech Coast Angels, Golden Seeds and Investors Circle.

Venture Capital

Start-up entrepreneurs can go for venture capital to fund their business needs. Venture capitalists are interested in investing in early-stage businesses that have high potential for return on investment. Typically such business ventures are accompanied by a fair amount of risk but the VCs are prepared for that. Venture capitalists usually hold equity in the business they invest in.

They choose to invest in the companies that have a novel technology and higher growth prospects which include Software, IT and Biotechnology. Venture capital is a great option of fund raising for relatively new ventures that find it difficult to raise funds in public market. It also supports the establishments that could not secure a bank role.

Bank Financing

Bank loan is among the most common ways in which new business entrepreneurs use to raise capital for their business. Before approving the loan, the bank may demand a loan guarantee from the Small Business Association (SBA) - a government body who guarantees up to 80% of the total loan value for the applicants who comply to all desired guidelines.

As an alternative to SBA's guarantee, you can also offer some other form of security including your home to seek loan approval from the bank.

In addition to above mentioned ways, seeking help from family and friends is traditional but very effective way to raise funds for your start-up business. This way, you can also avoid the hefty interest rate and the tension that above sources of funds provide. It gets problematic at times as personal relationships are at stake. You can put any lending agreement in writing with clearly mentioned terms and conditions even if it is a "friendly" loan.

For more insight into fund raising for start-up business, you can join a CEO peer group or CEO associations where you can gain more information on how you can get capital for business development.

Tom Bordon is a freelance writer who has extensively written about CEO corporate association. His articles focus on guiding CEOs, COOs and top level executives in making new business plans, and strategies in a CEO club in Atlanta or a CEO association.

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