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Ways to Raise Capital for Tech Start-up Companies
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It was difficult to raise capital for tech start-ups in the past if you didn’t live in San Francisco bay area, also known as Silicone Valley. This is the regional area where investors started their companies and raised enough capital to be able to invest in start-ups.
Due to innovation in the web and tech media coverage, more opportunities to get the initial investment for start-ups have arrived. So where are the opportunities to raise capital? It’s all over the web and choosing the right investment is important in relation to the business model and industry.
The following are ways to raise capital:
1. Angel Funding
This method of raising capital is when an opulent tech individual also known as an ‘Angel’ or group of Angels called ‘Angel Network’ invest money and knowledge in your start-up usually in exchange for a stake in the company.
To successfully obtain an investment with this method, usually requires a successful pitch or winning an angel hosted contest.
2. Crowd Funding
Although this method of raising capital is often associated with charity fund raisers it has come to notoriety in gaining capital for tech start-up companies usually through the internet. Crowd funding does not require advertising as they are boosted by word of mouth and tech media publications to raise capital. Money is usually raised by support of individuals and groups impressed by the start-up or gaining something in exchange for the capital.
This method of raising capital often raises opportunities for Venture Capital.
3. Venture Capital Funding
This is when money is raised by an investment in a Venture Capital firm by a group of investors known as VCs. The capital is given in stages the first and crucial being the seed funding stage, which is then, continued with another series in funding if the company, keeps growing. This is the most difficult method of raising capital as investors are not always willing to take the risk due to high rates in start-up failures.
4. Seed Money Funding
Seed money funding is when the start-up owners borrow money from family and friends as well as using their own income to get the company off the ground which usually leads to a more opportune investment. This is the most common and personal risk involved method of raising capital. This is because it usually involves maxing out credit cards and borrowing money which will be difficult to return if the business fails.
The method is also known as bootstrapping.
5. Bank Funding
Smaller loans are usually easy to get provided the recipient has a decent credit history, however bigger loans are difficult because like VCs banks are very calculating in risk assessment to determine if an investment is feasible.
To get bank funding it is crucial to show the bank you are making a personal risk by using personal income to support the start-up, this will help convince the bank.
6. Credit cards
As mentioned in number four, credit cards is a method of raising capital for a start-up, it is best to compare credit cards available as well as checking the credit limits and access to increasing the limits of the cards. As with the previous point a good credit history is vital in getting good credit card deals.
Planning which road to an investment is crucial in both getting an investment and choosing the right method of raising money for the start-up. The investor is usually a valuable asset in growing the company due to knowledge in the industry sector which makes the investor more valuable than just their money.
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