This Is How Startups Get Funded – The Most Common Funding Types For A Starting Company
Arranging the needed funds for your startup is a crucial factor for its successful launch. Even though money is not the most important thing, it’s 100% needed when launching a new venture. If you are a starting entrepreneur, you most probably have been thinking about how exactly to find the cash for your starting business. Well, the consulting company Startups.co has created this wonderful infographic, showing some interesting statistics about how startups get mainly financed. Here you can not only see the main options about how to get funding for a startup but also some intriguing statistics about the ways newly founded companies obtain their initial cash, the average amount raised per company, and some other interesting numbers.
Did you know that more than half a million new companies are started each month only in the United States? This is a huge number, but there is more. Each start-up rises around $74 400 on average and this makes more than $531 going to starting companies each year in the US. We are talking about a big thing here. Below are the main sources of cash and what percentage of the funds are raised by each:
So, if you are wondering how to finance your starting business, you will have the best chances if you take a personal loan, or ask your friends and family for help. At least this is the startup funding most of the starting entrepreneurs take advantage of, probably because it’s not the most desirable, but just the most accessible. It’s no secret that newly founded companies don’t have any credit history or whatever history at all to apply for any of the other types of financing. According to the infographic, almost all (95%) of these half a million companies that are started every month in the US are financed with personal funds of the entrepreneur or his/her family. This means that startups in the USA have really limited options for financing. This is pretty amazing to me, having in mind that The States are the most developed form of capitalism today. Just 5% of all starting ventures get access to bigger and less expensive sources of cash and this is far too low. Imagine what would it be, if there were more financial instruments for starting entrepreneurs…
Check some more interesting statistics on the infographic below:
A bit more about the different types of funding
Startup funding appears in many forms—from venture capital to crowdfunding—and each type has its own advantages and drawbacks. In this article, we’ll be focusing on the four most popular types of funding that startups usually get.
1. Venture Capital:
Venture capital is one of the most common sources of startup funding. It involves investors investing money into a business venture in exchange for equity. Typically, venture capitalists have both expertise and capital to offer the startup. The investor’s goal is to make a return on their investment by helping the startup become successful. Many investors look for “hot” investments, such as those in emerging markets, technology sectors, or with experienced management teams.
Crowdfunding campaigns are becoming increasingly popular for startups looking for funding. Crowdfunding provides a way for startups to raise money in small increments from a large number of people through online platforms – it can also help increase their visibility and give them access to valuable feedback and advice from the general public.
3. Angel Investors:
Angel investors are high-net-worth individuals who provide financial support in exchange for potentially higher returns than what they would receive by investing in traditional markets. Angel investments can come in the form of cash investments, equity investments, debt financing, or other forms of financial support such as mentorship or valuable contacts with potential customers and partners. They tend to look at the potential return on investment and how they can best help the business succeed in the long term, rather than short-term gains that may come from venture capital investments.
4. Bank Loans:
With traditional bank loans, startups can typically receive a much larger amount of money over an extended period than with other sources of startup funding such as venture capital or crowdfunding campaigns. However, bank loans also involve a longer process and may require more complex reporting requirements as well as good credit ratings or assets to use as collateral. Additionally, banks may require additional collateral from third parties such as family members or other investors in order to secure loans and protect against any risks associated with lending a large sum to a startup.
Startup funding is an important consideration when launching a business and the right choice is often dependent on the type of business being started and the resources available to entrepreneurs at any given time. Each type of funding has its own advantages and drawbacks, so it’s important for entrepreneurs to research their options carefully before they make a decision on which type will best suit their needs.
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