6 Ways To Fund A Tech Startup
You have a great idea, prime locations and all of the components for a successful startup – but what about money? Get some great ideas here.
The tech sector might be congested and increasingly mature, but there are always opportunities for new market entrants. However, if your vision isn’t matched by your bank balance, how can you finance a fledgling company without risking bankruptcy?
Here are six of the leading ways to fund a tech startup:
#1. Crowdfunding
The music industry is a fine example of crowdfunding’s egalitarian nature, with household-name artists running campaigns alongside garage bands. Kickstarter alone has already funded over 5,600 technology projects, raising in excess of $600 million. Pledgers can be rewarded with exclusive access, future discounts, shares or merchandise. The online nature of crowdfunding means tech-savvy investors are readily available, though hardware projects often require extensive supporting information to demonstrate their viability.
#2. Angel investors
Rather like crowdfunding, this involves throwing yourself on the mercy of strangers. However, angel investors tend to have a proven track record of expertise. They typically invest in exchange for part-ownership of a business, or a share of future profits. Gust claims to have helped over 450,000 entrepreneurs and business founders to attract finance. However, angel investors are sharp and committed business people by definition. That means they might meddle, demand a degree of control or expect a large ROI.
#3. Incubators and Accelerators
The best known of these is Y Combinator – a seed fund for tech firms willing to base themselves in America’s Silicon Valley. By helping to develop a minimum viable product and refine the accompanying sales pitch, incubators and accelerators provide more than financial and technical support. They can also act as networking hubs, spreading the word about a new venture to interested third parties. Indeed, networking is a key part of incubators and accelerators, which is a drawback if you’re not a social butterfly. There’s also a risk of your company bending to their will rather than vice versa, since partial ownership will have to be surrendered for short-term assistance.
#4. Advances
If a product or service is likely to be used by large companies, assertive tech founders sometimes contact these businesses directly to promote their plans. Explaining what’s under development and how it might be of benefit has seen significant advances being paid, alongside gratuities like office space or tech support are all examples. This is only really advisable if you’re happy to offer exclusivity, since investors would take a dim view of their assistance underpinning something their rivals can also benefit from.
#5. Loans
If you have an outstanding credit score (which can be checked on platforms like Experian), you might be able to secure a business startup loan. Having collateral also helps in any loan application. While this doesn’t require the surrender of control involved in points 2, 3 and 4 above, it does place extra pressure on the business to turn a quick profit. That might be impractical for more complicated technology products or services, such as a new desktop computer or IaaS model.
#6. Grant
The obvious alternative to a loan, grants can be acquired through applications or competitions. From feasibility studies to R&D funding, there are plenty of grants available to tech startups. Investigate platforms like Nesta and Idox in first instance, though bear in mind application processes tend to be laborious. It’s also necessary to demonstrate allocated funds are being spent in pre-agreed areas.
Getting your tech startup online is not always easy. But with a few tips from the experts, it can be done. Don’t lose faith, there is hope.