One of the biggest challenges entrepreneurs face is raising money for new business ideas or growth after startup. Unless you’re independently wealthy, you’re going to need a helping hand. But where to start? These days there are a number of innovative ways to approach the fundraising process, with technology playing an ever-increasing part.
What are the different types of fundraising strategies?
Your primary choice when trying to access funding is whether to borrow or seek investment. Borrowing means you retain a full stake in the business, but repayments can be an ongoing burden that may slow your growth. Conversely, investment delivers a cash injection you don’t have to repay, so growth may proceed more quickly – but you’ll have to share that growth with your shareholder.
Most people are aware of the traditional ways of accessing funds for starting a business – be it bank loans, funding from friends or that old favorite – using your own money. But the world has changed, and with the accelerating move online, the options for fundraising have exploded.
Traditional methods of funding have included:
- Bank loans: Loans remain a core option for businesses because they usually come with fewer strings attached, shorter payment periods, and in some cases, medium to low-interest rates.
- Angel investors provide capital for a business start-up in exchange for convertible debt or ownership equity. Many of the biggest tech companies today, like Google and Yahoo, were funded by “angels.”
- Venture capital: Like angel investors, venture capitalists provide capital to start-ups, early-stage, and emerging companies that show high growth potential.
- Bootstrapping with your own funds: This involves using your own resources. This may mean pulling from your savings or taking out a mortgage on your assets.
Let’s take a look at newer approaches that have emerged in recent years.
Crowdfunding leverages the power of the internet to spread the news about a business venture or cause, then allows you to receive funds through small contributions from a large number of people instead of from one source. Rather than seeking investment from a few wealthy individuals or institutions, crowdfunding allows anyone to contribute a small amount of money towards a specific goal or project. The sum is truly greater than its parts.
There are various types of crowdfunding, including donation-based crowdfunding, reward-based crowdfunding, equity crowdfunding, and debt crowdfunding.
In donation-based crowdfunding, contributors donate money without expecting anything in return. Reward-based crowdfunding offers contributors non-financial rewards such as early access to a product or a special edition of the product. Equity crowdfunding allows contributors to invest in a company in exchange for equity shares. Debt crowdfunding involves contributors lending money to a project or venture and receiving interest on the loan.
Crowdfunding platforms like Kickstarter, GoFundMe, and Indiegogo have become popular platforms for individuals and organizations to raise funds for their creative projects, entrepreneurial ventures, charitable causes, and personal needs.
Virtual fundraising refers to the process of raising funds through online platforms and tools, without the need for in-person events or activities. It involves using various digital channels and technologies to reach donors, promote fundraising campaigns, and collect donations.
Virtual fundraising has become increasingly popular in recent years, particularly during the COVID-19 pandemic, which made in-person events and activities difficult or impossible. Some examples of virtual fundraising activities include online auctions, virtual charity walks or runs, virtual galas, peer-to-peer fundraising campaigns, and donation pages on social media.
Virtual fundraising offers several advantages, including the ability to reach a wider audience, reduce costs associated with in-person events, and collect donations more efficiently. It also allows for greater flexibility and creativity in fundraising campaigns and can be used to build and maintain relationships with donors over time.
Business incubators are programs or events created to provide new businesses access to the financial resources they require to grow. Incubators benefit businesses and entrepreneurs more than just financially, as they offer unparalleled access to possible angel investors and venture capitalists, as well as crucial insider insight from players and peers who have been down the fundraising journey. What could be better than having a group of like-minded entrepreneurs and investors together at one event?
Social media fundraising
Many non-profits rely on social media for fundraising, but it can be a strategic tool for any business looking to connect with supporters and potential investors. One of the key benefits of social media fundraising is its ability to reach a large and diverse audience quickly and easily. By leveraging the viral nature of social media, campaigns can quickly gain momentum and generate significant support and donations in a short period of time.
However, this type of fundraising also requires careful planning and execution in order to be effective. Campaigns must be well-designed and targeted to the right audience, with a clear message and compelling call to action. Additionally, your campaigns must be well-managed and maintained, with regular updates and real engagement with donors and supporters. It’s as easy to lose followers as to gain them, and planning and consistency are key on these platforms.
How do you develop a fundraising strategy?
Developing your own fundraising strategy requires careful planning and a clear understanding of your business goals and objectives.
- Conduct a thorough financial analysis: Before seeking funding, it’s important to conduct a thorough financial analysis of your business. This analysis should include a review of your revenue, expenses, and profit margins, as well as an assessment of your cash flow and financial projections for the future. This information will help you determine how much funding you need and what type of funding is most appropriate for your business.
- Prepare a comprehensive business plan: In addition to a financial analysis, you should also prepare a comprehensive business plan that outlines your company’s goals, strategies, and operations. Your business plan should include a detailed description of your products or services, your target market, your marketing and sales strategies, and your management team. This will help potential investors understand your business and assess the potential for future growth.
- Determine the best funding sources: Once you have completed your financial analysis and business plan, you can begin to explore funding sources for your business, as we’ve discussed. Consider the pros and cons of each option and determine which funding sources are best suited to your needs and goals. It’s also important to research the requirements and application processes for each funding source, so that you can prepare your application materials and approach potential investors or lenders with confidence.
There is so much to consider before you embark on your fundraising journey. Cost and convenience aren’t the only factors when seeking funding for your business, remember to consider how each solution will fit into your long-term goals, and weigh up the pros and cons. It pays to talk to a team of experts before you even start with your due diligence and planning your pitch.
Many new and younger companies cannot afford to appoint an appropriately qualified professional to navigate preparing and pitching to possible investors, but also cannot afford to be without the technical financial skills that one could offer. Outsourcing your fundraising campaign can be a smart move for entrepreneurs who want to save time, reduce costs, and increase the chances of securing the right funding they need to grow their businesses. By partnering with experienced players, you can focus on your core strengths while leaving the fundraising process in the hands of experts, where it belongs. Outsourced CFO offers the solution – the business services of a passionate OCFO for a number of hours per month tailored to your needs.
Reach out to the Outsourced CFO team and get the expert fundraising-readiness support that you need in order to access those crucial funds.