How to Fund Your Brilliant Idea’s Way to Becoming A Reality, Part 1
Here’s a number which shows how harsh reality can be for startups and their founders — about 9 out of every 10 new startups fail, never reaching profitability. Many entrepreneurs and dreamers do not realize how winding the road to success is, especially those with no prior experience. One of the most difficult stages is actually raising enough money to make the dream come true.
My name is Ofir Bar, and I’ve been investing in technological startups and real estate ventures for almost two decades now. Let me introduce you to some of the most common ways you can achieve your funding goal if you’re an entrepreneur yourself. In the two parts of this article, we will raise the advantages and disadvantages of each way, so you can pick the right one for you.
First thing’s first, though. You must remember that inadequate funding is not the only reason why startups fail. Therefore, even if you pass this stepping stone, it doesn’t mean that your road is paved to success. Turning vision into reality is hard work, and that is something which should always guide you on your way up.
Loans
Approaching a bank or any other financing body for a loan should not be too complicated. Furthermore, these corporations are usually happy to give you money, once you’ve proven to them that your repayment plan is sustainable, since their bottom line is the profit they make off of this loan. Also, these loans can be spread out flexibly, making paying them back easier.
On the other hand, you must not forget that a bank or a credit company does not have your interests at heart. They give you money as a deal and expect to get it back with interest. Therefore, the bumps you may hit along the way are irrelevant to them. They may let you refinance a loan, but that, of course, will end up costing you more. Also, while private loan companies are more generous with the amounts they agree to provide, their interests are usually higher — as well as any penalty for late payments.
Venture capital
These financing bodies may seem more ideal than a bank since their essence is based, among other principles, on helping young startups grow. That makes them more accessible to you and your vision, of course. Also, your offer can also include stakes or equity in your company, not only an attractive repayment plan. Naturally, it would be a venture capital’s goal for you to flourish, and these financial bodies may be willing to take measures in order to reach that goal, such as providing additional funding along the way.
On the other hand, these are pros at investing we’re talking about. They’re probably not going to just give money away, and you’ll have to work hard to convince them that you are worthy of their efforts. Make sure you have a very detailed business plan and pitch, and that your soliciting is very convincing. Also, giving someone a stock or share in your startup means that you might end up being stuck with them for the long term — for better and for worse.
Angel investors
Personally, as an angel investor myself, I must say that I have a soft spot for this type of funding. Angel investors are basically people with ample experience in the field of investments. Not only do they provide capital, but they also serve as mentors during the growth process and sometimes become a part of your startup’s board — including attending meetings (but not always). This type of funding is more personal, and therefore much more flexible.
There is a downside as well, of course. Angel investors, being a person and not a big institution, can provide funding to a limited scale. This is usually a stepping stone on the path to gaining larger sums of capital. Also, you must make sure that you and your angel investor click. Some people tend to overlook that, thinking that the angel investor is nothing more than a wallet, but that’s a recipe for trouble. Remember that you’re going to be communicating with the angel investor frequently and intensively.
But wait, there’s more…
We’re just halfway through this list that I, Ofir Bar, have composed, but you’re going to have to wait a while in order to get the whole nine yards. Next month I shall publish part 2 of this list, and I can already tell you that it’s something worth waiting for.
