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Startup Capital 101
Startups and entrepreneurs often face financial risk as they start to get their idea off the ground. A pile of expenses, such as marketing, equipment, inventory, and more, makes it challenging to experience growth. That’s where startup capital comes in.
Startup capital is the money businesses can use to cover expenses while getting organized and building a customer base. Follow our guide to startup capital to learn how it works and how to raise funds through investors, lenders, and online platforms like Indiegogo.
What Is Startup Capital?
Startup capital is essentially any money that you need to start your business. New businesses might raise startup capital to cover the costs of office space, product development, marketing, payroll, and other expenses.
Sources of startup capital vary and may include personal savings, credit cards, venture capital firms, angel investors, banks, and other financial institutions. The business owners typically receive funds in exchange for equity or partial ownership in the new business. The investors earn a return as the business grows.
Many new businesses are funding with Indiegogo to raise money from their target markets in exchange for rewards. Crowdfunding is a cost-effective way to make an idea come to life and quickly reach your preferred audience and achieve market validation.
How Does Startup Capital Work?
Startup capital works differently depending on the source of your funding. If you’re self-funding, it’s as easy as spending the money according to your plans and budgeting. However, if you receive funding from investors or banks, you will need to consider repayment. Investors that have a stake in the company in exchange for their money will have a right to the profits as the business grows.
New businesses will generally need multiple funding rounds to meet their growing needs. Some startups will receive more than one round of funds from the same investor or group of investors, while others will need to seek out more sources of capital. The last round of funding may come from an initial public offering (IPO), in which you begin selling company shares to shareholders.
How To Get Startup Capital
Investors, financial institutions, and even crowdfunding backers want to know they’re giving their hard-earned money to someone who will spend it responsibly. Follow the steps below to learn how to raise startup capital efficiently and inspire trust with your contributors.
Have a Solid Business Pitch and Plan
Once you have your business idea in place, you need to create a plan to turn that idea into reality. Experienced investors and lenders will vet a business to see if they have a solid business plan. Crowdfunding backers who want to ensure they receive their products and rewards will do the same thing.
You must also have a strong idea of your business goals and values, target market, and budget for using startup venture capital. Business plans may include the following information:
- A description of your company and its products or services
- Information about your target audience, including your ideal customers and competitors
- Your business’ organizational structure and leadership bios
- Marketing strategies and plans
- Financial projections and budgets
Identify and Forecast Startup Costs
To know how much money you need to raise, you need to estimate how much starting your business will cost. You can start by listing all your business’s expenses, including equipment and supplies, prototyping, manufacturing, shipping costs, payroll, marketing, and other essential purchases and ongoing fees. Categorize each as a one-time or recurring expense, then add up the total to see how much you should raise.
Early-stage startups may plan to raise enough money to hit all their goals until their next round of funding. Planning early is extremely important when raising capital.
Start Crowdfunding
Crowdfunding with Indiegogo can help businesses and entrepreneurs in various industries raise funds and seek contributions from individual backers. It’s one of the best ways to fund a startup because it allows you to learn more about your target market and potential investors while raising capital.
You can start planning your crowdfunding campaign by setting up your team, creating a timeline of events, and determining what your perks and rewards for backers will be. It’s also helpful to start building your online community before your campaign begins. You can set up your social media profiles and start marketing your business or product idea with Indiegogo’s pre-launch pages.
When you set up your Indiegogo account, you can also start moving your community to the campaign platform. Get them ready for your campaign launch by creating your pre-launch page, marketing your campaign on social media, and sending out email newsletters to let your audience know about your launch date. While your campaign is live, ensure you keep backers up-to-date on your project and fulfill their perks as promised.
The Difference Between Startup Capital and Seed Capital
Professionals sometimes use the terms startup capital and seed capital interchangeably, but there is a difference between the two terms. Startup capital is the money you raise through investors, lenders, and other backers when you’re trying to start your business and begin selling your product or service. You use it to cover operational expenses.
On the other hand, you typically raise seed money from close supporters, such as family and friends. Seed money is usually a smaller amount needed to keep a business running through its early days. Instead of covering operating expenses, seed money primarily covers smaller costs a new startup faces, such as licensing, business plan development, or creating a prototype.
Get the Initial Funds You Need for Your New Business Venture
The process of raising capital for startups can sometimes be challenging and overwhelming. Investors often have strict requirements that startups must meet to get funding. However, crowdfunding can be extremely rewarding for early-stage startups that need help raising funds, building a supportive community, and gaining market validation.
Connect with your supporters by creating a new campaign with Indiegogo.
