Startup owners looking to get funded need to consider these three things

Whether you’re thinking about setting up a small cheap car rental in Iceland or a digital app, the essential element of every startup is funding. There are a few ways to get funded depending on the nature of your business.

Friends and family should not be your first choice

If you happen to be blessed with rich friends and family, getting them to fund you might seem like the most natural next step because those that love you should want to support you, but the fact is that they should never be your first choice. The most obvious reason is that you want your startup idea to be able to attract investors. A poor idea with a weak proposal would never get any funding, which can be a blessing in disguise as there is a high chance of it flopping. If the tables were reversed, investors would generally pour their resources into a strong idea rather than fall prey to nepotism.

Stay away from asking for funding from friends and family unless you can pitch it in a way that you know that your friends and family truly believe in the product or idea instead of throwing their support behind you simply because they care about you and want to help you realize your dreams.

Are Angel investors the best option?

Individuals with the capital and interest in startups are often termed Angel investors. In return for their funds, they are given a portion of equity. Given the boom in technology that gave birth to Uber, Facebook, AirBnB, etc, Angel investing is on the rise, and the only way to attract an Angel investor is by having a great idea with a strong action plan.

Startup owners will need appropriate valuation with reasonable terms in order to turn the head of angel investors. As they are going in early, when the risk is at the highest, lower valuations are often given as compensation. Most angel investors are sourced through networking, so getting referrals through colleagues or friends are a solid bet, especially if your startup is in a field that the angel investor is familiar with.

Getting funded via VCs or crowdfunding options

Crowdfunding is a newly popular method of raising capital. Due to digitization, entrepreneurs and startup owners have the opportunity to raise funding from investors from all over the world. However, crowdfunding often requires some form of reward, which isn’t ideal if your product is more service oriented. However, it does operate on a donation-type basis by appealing to those who feel strongly about your idea and want to see it come to fruition. Crowdfunding is definitely one of the most risk-free and beneficial ways in order to obtain funds because entrepreneurs will also be generating buzz around their product, which is a great way to spread awareness - something that no company ever shies away from.

VCs or venture capitalists are another method of getting funded that utilizes a third party platform. It’s an ideal option for startup companies that have a strong vision and can provide assurances to venture capitalists that it is both sustainable and scalable.

At the end of the day, finding what funding works for you really depends on what kind of business plan you have. If you’re launching a line of books, you might want to consider crowdfunding, but if you have big plans and your company is projected to grow exponentially, VCs are definitely the way to go.