5 Ways to Get Funding for Tech Startup
By Space Coast Daily // December 18, 2020
Finding investors for a tech startup is a challenge faced by many founders. Taking a bank loan is not always suitable as it can require much time for a platform to gain popularity. A startup’s monetization may take years since gaining a broad audience and winning investors are unstable processes.
However, some companies gain immense popularity even while in the startup phase. If you are a small startup and have no idea how to get startup funding, this article will be useful. Here, we have gathered the most widely used options for getting investors for a tech startup.
How to position a tech startup to get investors?
Here are our tips on positioning your startup to attract more attention from investors. You need to advertise your startup and present it in the best possible light. Read on to learn how to get funding at different stages of startup development.
1. Show that your company is disrupting
Prove that you can bring something unique and outstanding to the market. Define the highlight of your business that will get you noticed among the competitors. Prove that you can take up a large market share and attract as many target customers as possible. Show that you are not merely copying ideas and products of more successful companies but creating your own unique ones. That is what engages most investors.
2. Develop a core concept
Sometimes, tech companies wait for investments before they start working on their product. But this is not the best approach. Create a concept of your future product, be it an application or technology. Show the investors how it is going to operate after the development and launch stages. That gives them a more precise idea of where their money will go. It is the next best thing after having everything developed when you can’t afford full-development due to the lack of time and budget.
3. Show you are reliable
Nobody likes risks, especially when it comes to investing money. Make your investors feel you can bootstrap. You can prove it with your previous experience and work that you managed to do without any money. Provide research and build a chart with financial prognoses that demonstrates the results you will achieve after some time. Prove that your company has enough resources and skills to accomplish what you promise.
5 ways to get funding for technology startups
Here we listed the most popular ways. Consider them and select the most suitable to get funding for your tech startup.
This is a method of finding investments through customer communities or individual investors. There are special websites for crowdfunding, such as Kickstarter.
There are a few types of crowdfunding, each of them having peculiarities:
■ Donation-based. This type doesn’t involve money return. As a rule, it is used for charity programs or non-profit activities.
■ Reward-based. Investors get a reward for their contributions in the form of a product or service.
■ Equity-based. Investors become equity owners and receive a share of the company income.
Advantages: Turning to reward-based, you get complete control of your business. Equity-based type enables you to pay as much money as is convenient for you. In any case, you are in control of all processes.
Disadvantages: Crowdfunding requires lots of time and effort to advertise your company properly. Also, over-funding can have negative consequences. It can lead to added pressure you are not prepared to face.
2. Angel investors
Angel investors are investors that support startups in the early stages, not venture capitals. They contribute in exchange for an equity share of the company (stock). As a rule, they are individuals that require from 10 to 50 percent. They provide smaller sums of money but are more dedicated.
Advantages: with the help of angel investors, you can concentrate more on your product development. You can also benefit from their expertise, and it is easier to find a compromise with them than with venture capital investors.
Disadvantages: There is always a risk that they may leave your business if your views don’t coincide with theirs. The process of finding the right angel investor may be time-consuming and require much effort.
3. Government programs and grants
Your startup may also look for help from governmental and private grants. There are many grants available that are ideal for tech startups, especially if your project is groundbreaking and unique. You may go for governmental loans from the SBA (Small Business Administration) or SBLF (Small Business Lending Fund). Banks and other lending organizations taking part in these programs offer loans guaranteed by the government. A grant is an excellent opportunity, as you don’t have to pay back the money.
Advantages: Such solutions are ideal for businesses that work in various niches.
Disadvantages: It can be time-consuming and take much effort to win assistance in competitive spheres. Grands don’t offer complete coverage of your financial needs. You will have to cover part of your expenses on your own.
4. Business accelerator
A business accelerator helps startups by doing more than just raising money. It provides education and mentorship for projects. As a rule, accelerator programs are fixed-period, cohort-based, and include investment opportunities, communication with mentors, and educational programs. There is a presentation day or a public pitch at the end. Business accelerators have assisted such successful companies as Airbnb and Uber.
Advantages: Accelerators help you stand out among the other startups. They connect you with a network of investors.
Disadvantages: Many accelerators offer unhelpful distractions. They are most helpful during the fundraising season.
5. Peer-to-peer lending
It is very similar and often wrongly identified with crowdfunding. Both opportunities utilize people’s power to support your business. In a nutshell, peer-to-peer investments are crowdfunded loans. The difference is that in return for loans, investors earn interest on the money provided instead of receiving a share in the business. Such investments usually consist of several investors. Users can apply for such loans on various platforms like Funding Circle.
Advantages: Borrowing money is easier and more flexible than getting a loan from a bank.
Disadvantages: Accumulating interest can become costly. Some companies cannot cope with payments.
The bottom line
Getting funding for a tech startup is not an easy task. We hope this article gave you insight into choosing the best way to get help from investors for your startup and positioning your project. There are many options available but make sure to select the most suitable according to your project requirements.