Like making a new album or opening a bar - to start a startup you need passion and creativity but also enough money to make it happen. This year, entrepreneurs have a number of funding choices available to them - each with pros and cons. Either getting started or trying to scale, this guide covers exactly how to finance your startup and also provides you actionable insights to help you make informed choices.

1. Bootstrapping

Definition: Bootstrapping means using personal savings or reinvesting profits to fund your startup. It's like starting a band with what you have, not what you get from outside help.

Why It's Great:

• Your business remains entirely in control of yours without giving up equity or taking on debt.
• It also creates discipline in financial management which may allow long term growth.

Considerations:

• Bootstrapping restricts your growth to what you have.
• It involves sacrifices on your part - dropping money in savings or cutting back on expenses.

Pro Tip:

• Keep costs low & make early revenue generation your priority to sustain growth.
• For example, focus on creating a minimum viable product to rapidly test your market without spending too much on development.

2. Friends and Family

Definition: Getting initial funding via friends and family is often an easy way to raise capital quickly. It's like having bandmates that support your vision.

Why It's Great:

• Flexible terms: Friends & family need not demand high repayment requirements or equity stakes.
• Trusted relationships often simplify negotiations.

Considerations:

• Intermixing personal relationships with business relationships can create conflict if expectations aren't managed properly.
• Relationships can be tested if the business fails.

Pro Tip:

• Formalize these investments professionally.
• Define terms, repayment timelines and equity stakes if any.

3. Angel Investors

Definition: Angel investors are seasoned producers who put their capital and expertise into promising startups. And sometimes they bring more than money to the table: they provide mentorship and connections.

Why It's Great:

• You get substantial funding and strategic advice.
• Many angels invest early when other funding is not available.

Considerations:

• Angel investors typically expect equity in return for their investment.
• Some control or decision making may be required of you.

Pro Tip:

• Make an appealing pitch about your business's growth potential.
• Realistic financial projections, problem solving angle and evidence of market demand are important.

4. Venture Capital (VC) Firms

Definition: Venture capital firms are like record labels that give investors money in return for equity and sometimes a seat on a board. They target high growth startups with scalable business models.

Why It's Great:

• VCs put up big amounts of capital and provide strategic support.
• They could also lead to partnerships, top talent and additional investors.

Considerations:

• Securing VC funding is competitive and due diligence can be stringent.
• The founder gives up some equity and some control over the direction of the company.

Pro Tip:

• Focus on startups with high growth potential & scalability.
• When pitching, talk about how your business fills a large market need and how you plan to scale operations.

5. Crowdfunding

Definition: Crowdfunding sites like Indiegogo and Kickstarter let you reach a broad audience and raise funds from single supporters. This is akin to putting your music on streaming services and then raising capital.

Why It's Great:

• You tap into a large pool of possible backers while marketing your idea.
• Crowdfunding can even test your business idea before you go live.

Considerations:

• It may take some work to create a compelling campaign for success.
• Failure to reach funding goals can wipe out all pledged funds on some platforms.

Pro Tip:

• Make a clear campaign with visual goals and rewards.
• Use storytelling to emotionally engage backers.

6. Small Business Loans

Definition: Traditional small Business Loans through banks or online lenders provide capital for operational needs - similar to financing new equipment or venue improvements.

Why It's Great:

• You own your business but have predictable repayment terms on loans.

Considerations:

• Exceptional eligibility may include a good credit score and collateral.
• Payment begins immediately irrespective of business performance.

Pro Tip:

• Get detailed financial statements and a good business plan ready for loan approval.
• Go with government-backed loans like SBA loans for better terms.

7. Grants & Competitions

Definition: Some Government grants and startup Competitions provide funding without equity - like winning a battle between the bands.

Why It's Great:

• Non-dilutive funding means no loss of equity.
• Winning competitions also gives credibility and visibility.

Considerations:

• Sometimes these grants have particular qualifications and applications.
• Grants are competitive.

Pro Tip:

• Research grants & competitions that fit your industry & business goals.
• Tailor your application to explain how your startup meets grant specifications.

8. Incubators & Accelerators

Definition: Some Incubators and Accelerators offer funding, mentorship and resources - like joining a musician mentorship program. Many end with demo days where startups pitch investors.

Why It's Great:

• You receive support from a community, resources and mentorship to help you grow.

Considerations:

• Many programs demand equity for participation.
• Not all entrepreneurs will enjoy this intensity and pace.

Pro Tip:

• Pick specialization programs for your industry.
• Look for those with established alumni networks and connections to investors.

9. Revenue-Based Financing

Definition: Revenue-based Financing offers flexibility because you get funding in return for a percentage of future revenue.

Why It's Great:

• Flexible repayment terms reduce financial strain during slower revenue periods.

Considerations:

• Repayment could be more than the principal amount borrowed.
• Not suitable for businesses with regular revenue streams.

Pro Tip:

• Have accurate revenues projected and terms understood.
• Use reputable lenders to avoid poor terms.

10. Strategic Partnerships

Definition: Partnering with established businesses can give you funding, resources and expertise - like working with another band to grow your reach.

Why It's Great:

• You get funding plus industry knowledge, networks and infrastructure.

Considerations:

• Alliances require alignment of goals and values.
• Roles and expectations can cause conflicts.

Pro Tip:

• Find partners whose goals match yours and who have complementary strengths.
• Write down roles, responsibilities and revenue sharing agreements.

Final Thoughts: Find Right Fit for Your Startup

The first step towards launching your startup is getting funding. Each option has its advantages and disadvantages - just like choosing the venue or equipment for your project. Assess your startup's stage, growth potential & long-term goals to determine the best course. You can put your startup on the path to success by 2025 and beyond - with the right funding strategy.