One of the most pressing concerns that an aspiring startup founder faces is how to finance the launch of his or her company and keep that financing sustained until the business can begin turning a consistent profit. Thankfully, there are numerous ways that American startups can secure initial financing. And because the fundraising and investment marketplaces have evolved significantly in recent years, there are now more ways to obtain initial startup funding than ever before.
Traditional Financing Options
Traditionally, new American business owners have secured their initial funding in one of three primary ways. First, they took out small business loans from neighborhood or national banking institutions. This remains a viable option, although it can be surprisingly difficult to secure such a loan in the post-recession economy, even with a decent amount of collateral.
Second, they asked loved ones to float startup costs. This also remains a viable option, but borrowing money from loved ones can be a sincerely tricky and emotional business, so it is a path usually best avoided. In addition, modern startup costs are significant enough that most loved ones are not in a position to finance the costs associated with a fully-fledged launch.
Third, they approached venture capital firms and asked professional investors to take a risk on their model. Just like small business loans and familial lending, this remains an option for aspiring startup founders today. However, the startup marketplace is so saturated that venture capitalists can afford to be extremely choosey with their resources. At present, most large venture capital firms are drawn to large-scale startups capable of significant long-term growth and leadership potential within a given industry. Also, venture capital firms tend to expect substantial equity shares, so this may not be the best path if you plan to formulate a sole proprietorship, partnership or limited liability company as opposed to a corporation.
Crowdfunding is becoming an increasingly popular way to secure startup funding because it allows a large pool of potential backers to invest virtually any amount of money they choose to. Some crowdfunding platforms concentrate on a smaller, more experienced pool of potential backers, while broader sites like Kickstarter are designed to appeal to everyone. This model does not always work for startups that are highly technical and lack a certain amount of crowd appeal. Similarly, crowdfunding is unlikely to be your startup’s only source of funding if you are launching a sizeable enterprise. But for relatively small new businesses, crowdfunding can work surprisingly well.
The newest form of startup fundraising has evolved out of the process of Initial Coin Offerings. Even startups that are not necessarily tech-focused are exploring this form of digital financing as a way to get off the ground. But it is important to speak with an attorney experienced in the ICO process before committing to this fundraising path. Despite the potential for a rapid influx of investment money, the regulations associated with this platform are both detailed and evolving. Unless you are tech-savvy and particularly interested in cryptocurrency, this may not be the optimal financing opportunity for your company.
Fundraising and Startup Launch Assistance Is Available
If you are interested in funding a startup, please contact the team at LawTrades today. Our attorneys have helped more than 5,000 startups secure financing, incorporate, navigate the on-going process of compliance, obtain intellectual property protections and formulate legally sound business strategies. Our approach is purposefully affordable, so startups of all sizes may benefit from our effective and efficient services. No matter what your fundraising and general business needs may be, LawTrades can either assist you directly or direct you to the best possible resources available for your unique situation.