Funding Your Business Idea: How to Get Started, Part 2 by @dhanishree

Anyone who has ever watched an episode of Shark Tank knows what the format of the show is. The startup entrepreneurs pitch their ideas to an audience of hungry investors who will hopefully be willing to bite at the chance to get a piece of the startup if the idea is good enough.

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In exchange for the shark's funding, a slice of equity is given to the shark who gives a certain amount of asked money for a less amount of equity. This means they are given a stake in the company in exchange for their investment. Having a well-functioning company will entitle them to a share of the profits that are generated.

Although it is a win-win situation for both parties, it does represent an inherent risk for investors as well. All the money they have invested into the business will be lost and the hope of making any profit if the business fails.

The first thing you ought to do if you are going to serve a pitch for your business is to develop a killer business plan and refine your pitch in advance of the pitch meeting. From there, you must figure out how to find investors who are interested in your business solution.

If you are looking for investors for your business, you can take a number of different routes to find them.

The first option is to consider approaching your family and friends to see if they want to invest in your new company. In case funding for your business is turned down by Mom and Dad's bank, you could try appealing to an angel investor to get a loan.

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Individuals with deep pockets and extensive business experience are likely to invest, and these individuals are known as angel investors. The majority of investors will get involved and will do almost everything from investing capital to providing advice about businesses, but venture capital works in a different way because it is geared more towards long-term investments.

There is a great deal of overlap between venture capital and angel investors, but its role differs from that of angel investors. Rather than dealing with a single investor, you will be working with a group of venture capitalists or fund managers who are looking to invest large amounts of money into your startup.

An entrepreneur who takes the initiative to establish a strong business plan and puts it in place is planting the seeds of success. It is then the responsibility of the VCs to ensure that the crops are watered and to continue watching their growth.

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A crowdfunding campaign is another way through which a business can raise funds. A multitude of methods can be used to accomplish this, including choosing to trade ownership shares in exchange for capital, seeking donations online, or trading products or services for cash in exchange for ownership. The crowdfunding technique is a legitimate method of raising money, and it generates a substantial amount of money when used properly.

As a small business owner, it might be beneficial for you to invest your own money to bring your business idea to life. While this may sound like a no-brainer, it is something that you should consider carefully. When an emergency arises, cash saving is a great source of capital, but it needs to be kept in mind that it is not wise to completely drain your emergency fund in an emergency situation. Next time you're in trouble with your car or you discover that your roof has a leak, you're going to need to go dig into your piggy bank to pay for the fix. In essence, what we are saying here is that as a precautionary measure, you should always leave a little cushion in your savings account.

In some cases, if you apply for a personal loan, you may be able to get a better deal on your financing. In a similar manner to a business loan, these loans can unlock a lump sum of money that you will be able to use for whatever purpose you wish for your business. The disadvantage of these types of loans is that the interest rates are usually much higher than those available for business loans. Additionally, you combine both your personal and business finances (business credit) in the process, and that can also affect the quality of your credit score.

Even though we have scratched the surface of business financing, there is so much more to be learned about this area. Finding the right source of funding for your business idea will really depend on the type of funding you need. With a small business, you are probably not going to need as much cash as you would if you opened a store, since you are likely to work with a small team, and you will not have many overhead costs.

You should also consider the ownership stake you hold in the company. A certain proportion of entrepreneurs will be happy to give up their equity to access some much-needed capital, while a smaller proportion will feel uncomfortable inviting additional people into the kitchen in the first place.

In summary, what I am trying to convey here is that every business is different, and the best way to understand your financing options is to be familiar with them as soon as possible. Taking on the challenge of running a business is a rather exciting prospect, but it is important to make sure you are passionate about it before you start looking for money.

Read the previous part here