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• Source of Funds Examples in a Business Plan: 8 Suggestions
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A solid business plan is one of the most important documents you’ll need to create for your company. This document provides a roadmap for your company’s future developments. However, no growth can occur without a sufficient amount of working capital. That’s why your business plan should include a source of funds section – it can remind you how to maintain the cash flow your company needs.

There’s another reason this part of your business plan matters. It can show certain lenders how much money you need beyond what the funding sources in your business plan can get you. That said, not all lenders will require you to share a business plan. For example, SmartBiz’s loan approval requirements don’t include business plans among the necessary paperwork. Either way, below are some source of funds examples in business plans.

What is a business plan?

A business plan is a document that guides your company’s growth. It helps define your business goals and provides a clear overview of how you’ll achieve them. You can also use it to plot out your marketing, operational, and sales approaches. Your business plan can be the foundation of a strategy to minimize risk and maximize growth.

Another reason why solid business plans are essential is that you’ll often need to provide them as you apply for business loans. Business plans provide an in-depth look at a company’s plan for profits, so lenders can more easily judge the borrower’s likelihood of repayment. Lenders are much more likely to finance borrowers whom they believe can pay back the loan amount in a reasonable timeframe.

8 source of funds examples

Having a source of funds – sometimes several sources of funding – is vital to growing your business . Common funding options include business loans, and sometimes, to qualify for them, you must show lenders your other funding sources. Understanding the below source of funds examples in business plans can help you better structure yours.

1. Personal savings

When you’re just getting your business off the ground, sometimes, the fastest way to fund it is directly from your current savings. However, entwining your personal savings into a company that could fail is a risky prospect – but it also shows commitment. Lenders and investors often respond well to a borrower who’s ready to go the distance with their ideas.

2. Money from friends and family

Money from family and friends, which you’ll also see called “love money,” is a viable source of funds in your business plan. However, just as it’s risky to get your own money wrapped up in a business, it’s dangerous with other people’s finances too. Plus, accepting money from a loved one can come with drawbacks. For starters, not everyone in your life has much to spare in the first place. Furthermore, if you borrow money from friends or family and you can’t repay it, the relationship could be damaged.

3. Federal and private grants

Occasionally, your business model can put you in line for federal grants. That said, rare is the business that qualifies for federal grants – technically, the government does not provide grants for small businesses growth. However, private companies ranging from FedEx to the NBA offer grants to small businesses that fit certain criteria. If there’s a chance your company could fit these criteria, you can include private grants as sources of funding in your business plan.

4. Share sales and dividends

Selling shares of your company to investors – as in, anyone who buys stocks – falls under a category of funding known as equity financing. This arrangement can be lucrative, which is a main reason why you see so many companies having initial public offerings (IPOs).

However, equity financing has a few drawbacks. For one, you’ll no longer have complete control over your company's future, as stockholders dilute your ownership. Additionally, you’ll have to account for dividends in your financial planning. You pay these sums to your shareholders every quarter.

5. Venture capital

If you need a large amount of cash, venture capitalists can be a viable option. Typically, though, venture capitalists are only interested in funding startup businesses in the tech sector with high growth potential.

Venture capital is a high-reward but high-risk funding source. It often requires you ceding a certain amount of ownership – and thus control – of your business. Furthermore, if your business fails, you may still need to repay any venture capitalists or firms that have funded your operations.

6. Angel investors

An angel investor is a wealthy private individual who invests in small businesses to help them get off the ground. They tend not to offer as much starting capital as a venture capitalist, but they can make up for the smaller amount with experience. Angel investors are often experts within a specific industry and put money back into it by investing in newer businesses within that sphere.

Although you’ll have to give an angel investor some control over your company, their experience and network can help your business grow. Additionally, the word “angel” in their name reflects that they typically don’t ask for their money back if your business fails. That makes them a safer bet than venture capitalists.

7. Business incubators

Unlike the previous funding options, a business incubator doesn’t offer direct monetary support. Instead, incubators help fledgling businesses thrive by allowing them into their workspace and letting them share resources as they get started. This type of funding is indirect – you’ll rarely get direct cash infusions, but you’ll get resources that would otherwise cost you money. It’s common in high-tech industries such as biotechnology, industrial technology, and multimedia.

8. Bank loans

Bank loans probably ring a bell for you. When a current or aspiring small business owner needs additional funds, these loans are often the first thing that comes to mind. They’re among the most in-demand funding options available given their large funding amounts, long-term repayment periods, and low interest rates . However, their high amounts introduce lender risk that can make them difficult to obtain. To minimize risk, most lenders impose strict qualification criteria that you might not make.

Why do you need to provide sources of funds in your business plan?

Providing a source of funds in your business plan paves a path toward obtaining and using your funding. Knowing where your money is coming from and what you’re spending can help with strategic financial planning. It also minimizes the chances of your business partners spending money the company doesn’t actually have.

In a lending context, your sources of funds may help you qualify for any loans you need in the future. Depending on the funding sources you’re using, lenders may view you as someone able to repay the debt financing they offer. For example, using personal savings shows your commitment to your business, meaning you’re likely a reliable borrower who won’t flake on a loan. You’ll show your commitment to your company and your business at the same time.

Parting thoughts

Reliable funding sources are essential to achieving your company’s objectives, and their presence in your business plan can help you obtain more funding. Namely, certain entities that offer small business loans require business plans as part of the borrower approval process. When your approval plan clearly shows why you need the loan money and how else you’re getting funding, lenders may trust you more.

However, certain lenders don’t require business plans. In fact, when you apply for SBA 7(a) loans , bank term loans, or custom financing through SmartBiz ® , you don't need a business plan. Check now to see if you pre-qualify * – the business funding you need might be closer than you think.

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How To Write the Funding Request for Your Business Plan

What goes into the funding request, parts of the funding request, important points to remember when writing your request, frequently asked questions (faqs).

MoMo Productions / Getty Images

A business plan contains many sections, and if you plan to seek funding for your business, you will need to include the funding request section. The good news is that this section of your business plan is only needed if you plan to ask for outside business funding. If you're not seeking financial help, you can leave it out of your business plan. There are a variety of  ways to fund your business  without debt or investors. Below, we'll cover how to write the funding request section of your business plan.

Key Takeaways

• The funding request section of your business plan is required if you plan to seek funding from a lender or investors.
• You'll want to include information on the business, your current financial situation, how the money will be used, and more.
• Tailor each funding request to the specific funding source, and make sure you ask for enough money to keep your business going.

The funding request section provides information on your future financial plans, such as when and how much money you might need. You will also include the possible sources you could consider for securing your funds, such as loans or crowdfunding. Later, you can update this section when you need outside funding again for business growth.

An Outline of the Business

Yes, you've done this already in past sections, but you want to give potential lenders and investors a recap of your business. In some cases, you might simply share the funding request section so you need to have your business details such as what you provide, information about your target market, your structure (i.e. LLC), owners' and members' information (for partnerships and corporations), and any successes you've had to date in your business.

Current Financial Situation

Again, you've provided some financial information in the financial data section , but it doesn't hurt to summarize. If you're submitting just the funding request, you'll need this information to help financial sources understand your money situation.

Provide financial details such as income and cash flow statements, and balance sheets in your funding request section.

Offer your projected financial information as well. If you're asking for a loan for which you'll be offering collateral, include information about the asset. If the business had debt, outline your plan for paying it off. Finally, share how you'll pay the loan or what sort of return on investment (ROI) investors can expect by investing in your business.

How Much Money Do You Need Now and in the Future?

Indicate what type of funding you're asking for such as a loan or investment. Outline what you need now and what you might need in the future as far as five years out. 

How Will the Funds Be Used?

Detail how you'll be using the money, whether it's for inventory, paying a debt, buying equipment, hiring help, and more. If you plan to use the money for several things, highlight each and how much money will go to each.

Most financial sources would rather invest in things that grow a thriving business than things that pay for debt or overhead expenses. 

Current and Future Financial Plans

Current and future financial plans include items such as loan repayment schedules or plans to sell the business. If you're getting a loan, outline your plans for repayment (although most lenders will have their own schedules). If you have plans to sell the business, let the lender know that and how it will affect them. Other issues to consider are relocation (if you move) or a buyout. Finally, let investors know how they can exit the deal, such as cashing out (and how long before they can do that).

You're asking for money, so you need to always be professional and know your business inside and out. Here are some other things to keep in mind:

• Tailor your funding request to each financial source : Lenders and investors need different information, such as loan repayment versus ROI, so create different reports for each. 
• Keep your funding sources in mind : Each resource will have different questions and concerns. Do a little research so you can address them in your report.
• Ask for enough to keep your business going : Don't be stingy, as you don't want your business to fail from a lack of money. At the same time, don't be greedy, asking for more than you need. 

How do you request funding for a nonprofit?

Most nonprofits seek funding in the form of grants. Write a grant proposal that includes information on the project or organization, preliminary budget needs, and more. Be sure to format it with a cover letter, proposal summary, the introduction of the organization, problem statement, objectives, methods, evaluation, future funding needs, and the budget.

What are three methods of funding?

Grants and scholarships, equity financing, and debt financing are the main three methods of funding for small businesses . Grants and scholarships do not need to be repaid and are often best for nonprofit organizations. Equity financing is when you receive money in exchange for ownership and profits. Debt financing is when you borrow money that needs to be repaid.

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Small Business Administration. " Fund Your Business ."

Congressional Research Service. " How To Develop and Write a Grant Proposal ."

Library of Congress Research Guides. " Types of Financing ."

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How to Estimate Funding Requirements for Your Business Plan

Business plans kit for dummies.

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Even if you’re launching a one-person business located for the time being at the kitchen table, you still need to project the time it takes to sign the first client and cash the first check — and then the next one. While you’re waiting for revenue to take off, you’ll be burning through cash reserves to fund business expenses.

• Create a realistic forecast of your financial situation. Follow the steps for preparing a pro forma or estimated statement of income, expenses, and profit, along with an estimated balance sheet and cash flow statement.
• Estimate your funding need. Use your financial forecasts, and especially your cash flow projection, to determine how long you anticipate expenses to exceed revenue and by how much. Doing so helps you get a handle on when you expect expenses to be incurred, when you expect revenues to roll in, and the amount of funding you need in order to cover the gap.
• Create a funding time frame. After you establish how much funding you need, create a schedule for how long you need the funding to last before your business needs to become self-sufficient. This schedule, called your time frame , should include dates by which you plan to meet revenue-generating milestones — for example, first customer, first major contract, first $10,000 in sales, and so on — that you can monitor as indicators that your business is on track to achieve profitability before funding runs out.
• Runway: The amount of time funding needs to last before your business becomes profitable and self-sufficient or until additional funding will be required
• Burn rate: The speed with which you expect to spend the funding you’ve raised — in practical terms, the amount of cash required each month to cover the costs of staying in business

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How to Finance a Business: 4 Options to Consider

• 04 Aug 2020

In entrepreneurship, the old adage “you must spend money to make money” often rings true.

Once you’ve developed an innovative business idea , identified a market need, and created a value proposition , you need to acquire funding to get your company up and running.

The key to financing a business is keeping expenses as low as possible. You also want to ensure invested money is used to gain insight into how to proceed.

In the online course Entrepreneurship Essentials , taught by Harvard Business School Professor William Sahlman, entrepreneurship is described as the process of "spending money to produce information about future possibilities."

For instance, using funds to rent a beautiful office may be tempting, but leveraging it to run tests, conduct market research, or identify more efficient means of production can help you learn about your product, pivot accordingly, and expand your company’s growth potential.

Here’s a guide for assessing startup costs and expenses, along with four business financing options to consider.

Access your free e-book today.

How Difficult Is It to Fund a Startup Business?

Securing adequate funding for your business can be challenging. However, it’s important to remember that starting your own business is a large investment that should be given an appropriate period of time to succeed.

Often, new businesses need to raise funding quickly and efficiently to properly grow and thrive in their given market, but it can be difficult to adhere to various lending requirements without existing financial information. In spite of these challenges, there are various financial resources that can help you get your business off the ground.

Evaluate Startup Costs and Expenses

Before deciding how to finance your business, determine how much money you anticipate needing for startup costs and regular expenses. Whether you run a brick-and-mortar or online business, consider the following when taking stock of expenses:

• Licenses and permits
• Trademarks, copyrights, or patents for your brand and products
• Business insurance
• Legal or accounting assistance
• Rent and utilities (for brick-and-mortar businesses)
• Equipment required for production
• Website platforms
• Marketing materials (both print and digital)
• Shipping supplies
• Subscriptions to content management systems and sales or marketing platforms
• Market research

As your business scales , you may need to expand your expense list to include:

• Employee salaries
• Rent and utilities for office space
• Travel expenses
• Conferences, conventions, and networking events

These lists aren’t exhaustive—every business’s needs are different—but they provide a starting point for you to brainstorm all possible expenses for your startup. When your list is complete, calculate your total estimated startup cost. This number is the amount of funding you’ll need to invest when starting your company.

Before raising capital, it’s also wise to familiarize yourself with how to read and create a balance sheet, income statement, and statement of cash flows. Financial literacy is a critical skill for entrepreneurs , and being aware of these financial statements will ensure you’re taking the necessary steps to become a responsible business owner.

Now, how do you obtain this necessary capital? Here are four sources of funding for your business’s launch.

Related: 6 Questions to Ask Before Starting a Business

How to Finance a Business

1. self-funding.

If your projected expenses add up to a manageable amount, you may be able to fund the business yourself. This can involve taking money from your personal savings account, dipping into your retirement funds, using credit cards and paying back the debt, or asking for donations from friends and family.

Self-funding comes with the risk of long-term debt or losing personal savings and, potentially, money from loved ones. However, it’s a financing option that allows you to retain full ownership over your business, which is often seen as a downside of raising venture capital from investors.

2. Crowdfunding

If you believe your business can garner a fan base, crowdfunding could be a good option. Crowdfunding platforms, such as Kickstarter, Indiegogo, and Patreon enable entrepreneurs to pitch their products and request financial backing.

If people are intrigued and support your product, they can donate to your company in exchange for a free item, discount code, or acknowledgment once your business is up and running. For this reason, crowdfunding is typically a good fit for business-to-consumer startup companies with physical products, although there are exceptions. Each platform has its own terms and conditions, which you should read before selecting one.

Like self-funding, crowdfunding allows you to maintain full ownership of your company, as long as you’re willing to thank your donors with free or discounted products. A few brands that got their start using crowdfunding are Oculus, PopSockets, and Allbirds.

3. Taking Out a Small Business Loan

Applying for a small business loan is another way to secure necessary startup funds. Before applying to banks and credit unions, prepare a business plan, value proposition, expense report, and financial projections for the next five years. Most banks or credit unions will ask to see some combination of these documents when considering your application.

Be sure to weigh the pros and cons of every bank loan offer you receive. Which gives you the lowest interest rate? What are the terms and conditions?

As Sahlman says in Entrepreneurship Essentials , “The terms of financing have a major impact on the success or failure of a venture.”

Related: What Does It Take to Be a Successful Entrepreneur?

4. Raising Venture Capital from Investors

Another avenue for funding your business is raising venture capital from investors.

“Successful companies are always forming hypotheses and testing all aspects of their business,” Sahlman explains in Entrepreneurship Essentials . “Ventures typically need outside investors to run experiments.”

Before reaching out to investors, prepare a business plan, value proposition, financial projections, and a tight, effective pitch deck.

The process of obtaining venture capital has been likened to dating —investors typically want to get to know you and your business before they commit.

One way to start this process is by asking a mutual connection to introduce you to investors. Your contact can serve as a character reference, if needed.

This process can take a while. If you’re looking for quick, easy money to start your business, raising venture capital may not be the right choice. Investors often want to see how you run your company before deciding to invest. Even after they supply funding, they may bide their time to see what you do with the money before investing more.

“Sensible investors stage their commitment to a company—they give enough money to conduct a value-changing test,” Sahlman says. “They preserve the right to abandon the venture by refusing to invest more money. They also design contracts that give them the right to invest more if the test yields encouraging results.”

There’s one factor that sets this option apart: Investors want to own a large, valuable share of your company in return for their investment. This allows them to sell their share in the future, when they predict your company will be worth a lot of money.

In Entrepreneurship Essentials , Sahlman shares Facebook’s journey with various investors and notes that it received $500,000 from angel investor Peter Thiel in its first round of funding in 2004. Just one year later, Facebook received a $12.7 million investment from prominent venture capitalist Jim Breyer.

Resist the urge to go big right away. Perhaps raising venture capital from investors is a second or third step for the funding of your business.

What's the Best Way to Finance Your Business?

Keep in mind that no two businesses are the same—only you know the ins and outs of your company’s needs. By weighing the risks and rewards of each funding option, along with your personal finances, predicted startup costs, and business expenses, you can select the best option for financing your business.

Are you looking to learn more about financing your venture? Explore our four-week online course Entrepreneurship Essentials and our other entrepreneurship and innovation courses to learn to speak the language of the startup world. If you aren't sure which course is the right fit, download our free course flowchart to determine which best aligns with your goals.

This post was updated on June 3, 2022. It was originally published on August 4, 2020.

About the Author

Fund Your Business

Small business funding is a vital step to start or accelerate the growth of your business. Learn how to get ready for funding, review your options, master the art of pitching, and more.

How to get funding

• Funding options
• Pitch your business
• Manage funding

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How to Successfully Pitch Your Business Idea

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Do you actually need additional funding to start a business? How much do you need? How do you successfully get funding? We have answers to all of these questions, plus additional tips to improve your chances of getting funding.

Funding and financing options

There is a wide variety of funding and financing methods available to small businesses. Learn what makes them unique and how to choose the best option(s) for your business.

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When seeking funds, you’ll likely have to pitch your business. Learn what you need to prepare and how to confidently pitch your business.

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An often overlooked part of pursuing funding is how you will track and use it after you receive it. Learn how to get the most from your additional cash and track its use for you and any external stakeholders.

Funding your business FAQ

What is the best source of funding for small businesses?

The best source of funding for your specific business depends on numerous factors like the stage of your business, creditworthiness, and industry. Typically some combination of self-funding, friends and family and financing, and eventually some sort of business loan is your best funding source.

How do startups get funding?

Startups and small businesses typically secure funding through loans, friends and family, angel investors, venture capital, grants, or crowdfunding. To boost your chances you need to be actively networking, craft a compelling pitch, and write a detailed business plan.

How do you get funding for an existing business?

Existing businesses can seek funding through friends and family, loans, lines of credit, investors, grants, or revenue-based financing. To better your chances, it’s crucial to demonstrate financial stability and growth potential.

What is the most common startup funding?

The most common startup funding is often personal savings, friends and family, or loans.

How can you fund a business without a loan?

Businesses can be funded without loans through bootstrapping, crowdfunding, grants, angel investors, venture capital, or investments from friends and family.

Securing funding can be challenging, as it depends on factors like the business’s stage, financial health, and the investor’s appetite for risk. A strong pitch, business plan, and network can improve your chances.

How much should I ask for when funding a startup?

Determine the amount needed by creating a detailed financial plan, considering costs, projected revenues, and growth goals. Be sure to request a realistic amount to justify the use to investors.

Can you get funding with just an idea?

While difficult, it’s possible to secure funding with just an idea, particularly if you have a strong network, industry experience, or an innovative concept. While traditional options like a business loan will require more information and traction, some early-stage investors or incubator programs may be interested.

What are examples of funding?

Examples of funding include self-funding, bank loans, lines of credit, grants, angel investments, venture capital, crowdfunding, and investments from friends and family.

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• Small Business

How to Maximize Your Business Plan to Secure Funding

Updated Aug. 5, 2022 - First published on May 18, 2022

By: Jennifer Post

Writing a business plan for your small business should be one of the first steps you take when a business idea pops into your head. This is how you’ll discover whether your idea can actually be a profitable business. Lenders will want to know the business you plan on starting will make enough money for you to be able to pay back a loan or other forms of investment.

If you’re looking online at business plan examples or templates, make sure you don’t grab one labeled as a business proposal template . That is a separate document used in business transactions between one business and another for the completion of a specific project.

Why is having a business plan important to get funding?

Credibility.

Before anyone invests money in your business, lenders will want to know you have a concrete, detailed plan for paying the loan back. Provide information such as:

• Market value of your product or service
• Projected sales in the first year against projected expenses
• Projected profit during your first five years in business

Going through the process of putting all of this together is just another aspect of your credibility as a future business owner, no matter how much money you’re asking for.

Why a Business Credit Card Could Transform Your Small Business

These business credit cards that offer a convenient and efficient way to separate personal and business expenses, simplifying accounting and tax reporting.

Additionally, business cards can provide valuable perks such as rewards points, cashback, and expense tracking tools, enhancing financial management and the potential to help save money in the long run.

You don’t want to earn the reputation of being an ill-prepared entrepreneur. If you take your business idea seriously, show it.

Business need

Just because you’ve thought of a business idea and have outlined every aspect of it doesn’t mean investors and banks will feel the same way. Banks mostly care about whether or not you can pay back a loan, while investors tend to back businesses they connect with.

The need for your business is much more important than it might seem. In order to pay back a loan, your business needs to be profitable. In order for that to happen, you need customers. To get customers, you have to offer something they can’t get anywhere else, whether that’s a product, a service, or an experience.

What should you include in your business plan for funding?

Be detailed and thorough in every idea you present since you’ll most likely have to explain yourself and your business idea. Here’s what should be included in your business plan if you’re seeking funding.

1. Details about your business and company as a whole

It’s important to think about how you plan on setting up your business -- and for more than one reason. Some things to consider:

• Will you be a sole proprietor?
• Do you have a business partner?
• LLC vs. incorporation?

Business structure also matters for paying back a loan. If your business is unable to pay back a loan, the legal structure can be the difference between you having to pay it back somehow (with your home or other assets) or splitting the remaining balance among shareholders or partners.

2. Target market

At the risk of sounding like a broken record, your business can’t make money without customers. Take your business idea and research different locations to find your customers, and ask yourself a few questions:

• Are there a lot of other businesses like yours already out there?
• Are those businesses doing well?
• Is there a gap in what they offer?

You could also pick your target audience first. Let’s say you want young adults between the ages of 25 and 40 to be your main customers. You need to find where those people are and ask the questions noted above. Either way, those questions need to be answered and in a lot of detail.

3. How you plan to make money

This is so much more than just saying, “by selling a lot of product,” or “having a long list of clients.” Anyone can say that. Ask yourself a few questions, just like you did with the market aspect above:

• How much will you charge for your offerings?
• Will people actually pay that amount?
• How much do you need to sell to break even? To make a profit?

Even if your product is worth x amount of dollars in market terms, the harsh reality is it’s only worth what people are actually willing to pay for it. It’s best to underestimate and over-deliver -- as long as your plan still guarantees your ability to pay off a loan.

4. How much funding you’re seeking and its intended use

You need to have a firm grasp on how much funding you need to accomplish your goal, and don’t be shy about it. If you’re seeking a bank loan, it’s a little different because you will qualify for a certain amount based on a number of factors.

Some lenders also have use case limitations, where there are restrictions on what you can use the money for. Consider that, among all of the other qualifications, before deciding if that type of loan is the way you want to go.

If you’re going with an investor, it’s not usually a make-or-break factor to detail what you plan on using the money for, but the more information you provide, the better.

How to write your business plan for funding

Now that you know why a business plan is crucial for funding and what needs to be included in one, let’s get to actually writing it. There are also business plan templates and sample business plans available online that are a good guide to get you started.

Step 1: Write your executive summary

This is generally the first section of your business plan and your first chance to make an impression. As with most introductions, this is where you’ll summarize all the other sections of the business plan, such as your mission statement , general company information, products or services, and financials.

Step 2: Explain your company overview

All that time you spent researching different business formation options will pay off in this section. You’ll explain the structure of your company, exactly what your business does, and the target market you plan on addressing. You’ll want to get into detail about the market you’ve chosen, why you fit into that market, and how you plan on expanding within it.

Step 3: Detail your market analysis

This is the section where you will dive into the nitty-gritty of your intended market. Explain the following aspects:

• What audience lives within that market?
• What do they want?
• How do you plan on providing what they want?
• How much is your product worth?
• What are your plans for growth?
• Are there setbacks you might run into? How will you overcome them?

As anyone who has started a business knows, it’s not all gains. Letting investors know that you recognize there will be obstacles shows that you’ve really thought all of this out.

Step 4: Describe your product/service

In this section, you’ll do more than just explain what you will sell, although that’s part of it. If you’ve invented something or patented something, include that in this section. Don’t only show what you’re offering but explain how it works and how it improves on what’s already out there. If it’s a service, explain how you will produce better results than others.

Additionally, if you have to source materials or equipment from somewhere else, outline whom you will work with and what the process will be to secure those materials.

Step 5: Write out your sales plan

Here are a couple of steps you’ll want to take to outline your sales plan.

• Have some branding ideas on hand: These might include a company name, logo, color scheme, and sample materials, such as business cards or brochures. This will position your product for sale.
• Explain how you’ll market your product: Decide whether you will go with free online marketing, such as social media, or paid marketing, such as online or print ads. While you can choose among options, it will come down to your target audience. Do they spend most of their time online, or do they still read the newspaper every morning? That will determine where you should put your marketing efforts, and since ad return is a business metric you’ll want to track later on, having a solid plan in the initial stages will make that process smoother.

Step 6: Detail and explain your financial projections

This section should come fairly easily once you’ve completed the others. You should have an idea of what it will cost to produce your product or service, how much you can charge for it, your market share, and how you will spend money on marketing.

Do your projections in time increments for the lifecycle of your business , such as the first year, first five years, and looking ahead at 10 years and beyond.

The first couple of years you can be pretty specific about your projections, whereas your long-term projections can be offered up more as goals you would like your company to reach in a certain period of time and how you plan to achieve them.

4 tips for writing effective business plans to secure funding

Now that you have a firm grasp on what needs to be in your business plan, how you obtain that information, and how you actually create a business plan, here are some tips to make sure you’re getting the most out of it.

1. Don’t leave anything out

Leaving bits and pieces of your business up for interpretation or guessing will only hurt your chances of securing funding. If investors are left to fill in the blanks, you have no control over what they fill them with. Make sure you’re as thorough as possible in your research and writing so that nothing is left out.

2. Write with personality

There’s a scene from Parks and Recreation where Tom is presenting a business to a potential investor. His original idea, Tom’s Bistro, is one he’s extremely passionate about. Ben comes in with another idea that has a greater chance of being profitable. Tom starts presenting that and soon finds both he and the investor are bored. As soon as he switches back to Tom’s Bistro, the mood in the room completely changes.

Even though that’s a scene from a television show, it’s a good representation of how adding a little bit of your personality and passion into your business plan can pay off, literally.

3. Don’t speak in general terms

Be as detailed as you possibly can. Use exact numbers, names, dates, etc. Doing this will not only show that you’ve done your homework, but that you’re committed to reaching those numbers by the dates you list.

It can seem daunting to feel like you’re committing to so much, but commitment is what investors are looking for. They need to see that you’re serious about your business, and the amount of detail you include in your business plan will reinforce that.

4. Be upfront about what you’re asking for

Don’t be afraid to ask for the amount you really need, even if it’s high. Being wishy-washy about the number might not present so well. As previously mentioned, bank loans are different in that you only receive an amount you qualify for. If you’re meeting with angel investors , it’s important to go in with a specific number in mind.

While the process doesn’t need to be as dramatic as Shark Tank , expect some back and forth once you present your business plan and offer up how much money you’re asking for.

Final thoughts

A business plan is one of the most important documents you’ll create for your business. It’s where you introduce who you are, what your business is, and how it will be successful. If, as most people do, you’re using your business plan to secure funding, you’ll want to be as detailed and thorough as possible in your research and writing.

You want potential investors to be as serious about your business as you are, so convey to them why you’re serious and how you’re bringing something unique to the table that they would be lucky to be a part of.

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Jennifer Post writes about marketing and software for small businesses for The Ascent and The Motley Fool.

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5 Common Funding Sources For Start-Ups & Growth

Written by Dave Lavinsky

If you want to be successful in business, it is crucial to determine when, where, and how to obtain the startup funding you need. Whether you need $1,000 or $1 million to start or expand your business, if you can’t raise money, you can’t build the business you want.  

Before You Look For Funding

Before you look for funding, you need to create a solid business plan. In addition to explaining your business and your strategy for success, your plan must determine how much money you need and how it will be used.

Also, it’s very important for you to understand the timing of the funding. For example, do you need all the funding now (e.g., to build out a location), or can you receive your funding in stages or “tranches.”

The amount of funding you seek will affect the source of funding you approach. For example, if you require $250,000 in funding, angel investors are more applicable than venture capitalists. If you need $5 million, the opposite is true.

Secure Funding Quickly!

The key to securing funding for your business is having the right business plan. With Growthink’s Ultimate Business Plan Template you can complete your plan in just hours and secure funding quickly!

What is The Most Common Source of Funding for Entrepreneurs?

Personal financing is the most common funding source for entrepreneurs. This includes using both your personal savings and personal credit cards to initially fund your business. Other key funding sources, as discussed below, include business loans, friends & family, angel investors and venture capitalists.

What are the Different Ways Businesses can Find Start-up Funds?

While I have identified 41 sources of funding for your business , below are the 5 most common.

1. Funding from Personal Savings

Funding from personal savings is the most common type of funding for small businesses. The two issues with this type of funding are 1) how much personal savings you have and 2) how much personal savings are you willing to risk.

In many cases, entrepreneurs and business owners prefer OPM, or “other people’s money.” The four funding sources below are all OPM sources.

2. Business Loans

Debt financing is a fancy way of saying “loan.”  Credit unions and banks offer funding that you must repay over time with interest. This can come in the form of a personal loan, a traditional business loan, or different loans based on the type of asset you need to purchase (e.g., for equipment, land, or vehicles).

You must prove to the lender that the likelihood of you paying back the bank loans is high, and meet any requirements they have (e.g., having collateral in some cases). With a bank loan, you do not need to give up equity. However, once again, you will have to pay interest along with the principal.

3. Friends & Family

A big source of funding for entrepreneurs is friends and family. They can provide funding in the form of debt (you must pay it back), equity (they get shares in your company), or even a hybrid (e.g., a royalty whereby they get paid back via a percentage of your sales).

Friends and family are a great source of funding since they generally trust you and are easier to convince than strangers. However, there is the risk of losing their money. And you must consider how your relationship with them might suffer if this happens.

4. Angel Investors

Angel investors are generally wealthy individuals like friends and family members; you just don’t know them (yet). At present, there are about 250,000 private angel investors in the United States that fund more than 30,000 small businesses each year.

Most of these angel investors are not members of angel groups. Rather they are business owners, executives and/or other successful individuals that have the means and ability to fund deals that are presented to them and which they find interesting.

Networking is a great way to find an angel investor for your business.

5. Venture Capital

Venture capital funding is a suitable option for businesses that are beyond the startup period, as well as those who need a larger amount of venture capital for expansion and increasing market share. Venture capitalists and VC firms are professional investors that are more involved with business management, and they play a significant role in setting milestones, targets, and giving advice on how to ensure greater success.

Venture capitalists invest in new businesses and medium-sized businesses they believe are likely to go public or be sold for massive future business profits. Specifically, they want to fund companies that have the ability to be valued at $100 million or more within five years. They also go through an expensive and lengthy process of deciding on the best business to invest their venture funds. Hence, the application process and approval usually takes several months.  

What Are the Three Major Sources of Funding for New Businesses?

The three major sources of funding for new businesses are personal funds, loans and credit, and venture capital. Personal funds involve using one’s own savings or assets to finance the startup. Loans and credit options are sought from banks, credit unions, or online lenders to obtain the necessary capital. For high-growth potential startups, venture capital firms and angel investors can provide funding in exchange for equity. Other funding options like crowdfunding, grants, or government assistance may also be explored based on the specific business and its needs.  

The Bottom Line

As you search for the best funding options for your start-up business or to expand your existing business, you will discover that some sources are more complicated and time-consuming while others may offer a very small amount. While the five sources mentioned above are the most common, there are other ways of obtaining the financing you need including government programs including grants , crowdfunding sites, business credit cards, or a line of credit from a bank just to name a few.

Choosing an inappropriate type of funding can lead to unfavorable outcomes such as feuds between the lender and business owner, shift of control, waste of resources and other negative consequences.

With this in mind, you should study the benefits and drawbacks of each financing option and select the ideal one that will help you meet your business goals. With the right sources of money, the sky’s the limit for your business.

Other Helpful Funding & Business Plan Articles

Funding Requirements: How to Determine How Much Funding You Need and When You Need It

1. understanding the importance of funding requirements, 2. identifying key areas requiring funding, 3. calculating the financial resources needed, 4. mapping out funding requirements over time, 5. exploring different options for obtaining funding, 6. forecasting revenue and expenses to determine funding needs, 7. evaluating potential risks and mitigating strategies, 8. developing a plan to secure the required funding, 9. regularly reviewing and updating funding requirements.

1. The Strategic Lens:

- Founder's Vision : At the heart of funding requirements lies the founder's vision. What are your long-term goals ? Are you building a disruptive technology , aiming for global expansion, or addressing a specific market gap? Your vision shapes the magnitude and timing of funding.

- Market Dynamics : Markets fluctuate, and timing matters. Consider external factors such as economic cycles, industry trends, and competitive landscapes. A well-timed injection of capital can propel growth, while mistimed funding may lead to inefficiencies.

- Risk Appetite : Different founders have varying risk appetites. Some prefer conservative growth, bootstrapping their ventures until profitability. Others embrace risk, seeking aggressive scaling. Your risk tolerance influences funding decisions.

2. Quantifying the Need:

- Burn Rate : Calculate your monthly burn rate—the rate at which you consume cash. Include operational costs, salaries, marketing expenses, and R&D investments. This informs how long your existing funds will last.

- Growth Trajectory : Forecast growth. If you're a SaaS company, consider customer acquisition costs (CAC) and lifetime value (LTV). For hardware startups, factor in production costs and distribution channels .

- Capital Expenditure : Beyond operational expenses, consider capital expenditures (CapEx). These include equipment, facilities, and infrastructure. CapEx varies across industries.

3. Types of Funding:

- Bootstrapping : Self-funding is common in early stages. It fosters discipline and ownership but limits scalability.

- angel investors : Angels provide seed capital in exchange for equity. They often bring expertise and networks.

- venture capital (VC) : VCs invest at later stages. They seek high-growth companies and expect substantial returns.

- Debt Financing : Loans or bonds provide capital. Interest payments are due, but ownership remains with the entrepreneur.

- Crowdfunding : Platforms like Kickstarter allow public contributions. Ideal for product launches.

- Strategic Partnerships : Collaborate with industry players. They may invest or provide resources.

4. real-World examples :

- Tesla : Elon Musk's vision for electric vehicles required massive funding. Tesla secured VC investments, government grants, and public offerings.

- Airbnb : Initially bootstrapped, Airbnb later attracted VC funding. Their growth trajectory justified the capital infusion.

- Biotech Startups : Biotech firms often rely on venture capital due to high R&D costs. Their funding needs align with clinical trial phases.

5. Timing Matters:

- Seed Funding : Early-stage startups need seed funding for product development and market validation.

- Series A, B, C : As companies mature, they seek larger rounds (Series A, B, C) for scaling, hiring, and expansion.

- Exit Strategy : Funding decisions tie to exit plans—acquisition, IPO, or sustained profitability.

In summary, funding requirements are multifaceted. They intertwine vision, market dynamics, quantification, funding types, and timing. As you embark on your entrepreneurial journey, remember that funding isn't an end in itself; it's a means to realize your vision.

1. market Research and industry Trends:

- Begin by researching your industry thoroughly. What are the prevailing trends? Are there disruptive technologies or changing consumer preferences ? understanding the market dynamics helps you anticipate future needs.

- Example: Imagine you're in the e-commerce space. Recent trends show a surge in mobile shopping. To stay competitive, you might need funds to optimize your mobile app or enhance user experience .

2. Operational Needs:

- Assess your day-to-day operational requirements. What are the essential expenses? Consider salaries, rent, utilities, inventory, and marketing costs.

- Example: A restaurant owner might need funding to renovate the dining area or invest in a new POS system for smoother operations.

3. growth and Expansion plans :

- Think long-term. Do you plan to expand geographically or diversify your product line ? Growth requires capital infusion.

- Example: A software company eyeing international markets may need funds for localization, hiring sales teams, and adapting to local regulations.

4. Technology and Infrastructure:

- Evaluate your technology stack. Outdated systems hinder efficiency. Consider investments in software, hardware, and cybersecurity.

- Example: A manufacturing firm might need funds to upgrade machinery or implement an ERP system.

5. Human Resources:

- People drive businesses. Assess staffing needs. Are you understaffed? Do you need specialists?

- Example: A healthcare startup aiming to develop a telemedicine platform might require funding to hire experienced doctors and software developers.

6. Marketing and Branding:

- Effective marketing is crucial. Allocate funds for advertising, PR, and brand-building.

- Example: A fashion boutique launching a new collection needs funds for a captivating photoshoot, influencer collaborations, and social media campaigns .

7. Risk Mitigation:

- Consider unforeseen events. What if a key supplier goes out of business? Or a natural disaster disrupts operations?

- Example: A logistics company might need a contingency fund to handle unexpected delays or supply chain disruptions .

8. Legal and Compliance:

- Compliance costs money. Factor in legal fees, licenses, permits, and regulatory requirements.

- Example: A fintech startup must budget for legal consultations to navigate complex financial regulations.

9. Debt Repayment and Interest:

- If you have existing loans, allocate funds for timely repayments. Ignoring debt can harm your creditworthiness.

- Example: A small business owner with a term loan should set aside funds for monthly installments.

10. Scenario Analysis:

- Create best-case, worst-case, and realistic scenarios. How much funding do you need in each situation?

- Example: A solar energy startup should calculate funding requirements for both rapid adoption (best-case) and slower market penetration (worst-case).

Remember, assessing your business needs isn't a one-time exercise. Regularly revisit your financial plan, adjust as needed, and stay agile. By identifying key areas requiring funding, you'll position your business for sustainable growth and success.

Feel free to reach out if you need further insights or have specific questions!

Identifying Key Areas Requiring Funding - Funding Requirements: How to Determine How Much Funding You Need and When You Need It

### 1. The Holistic Approach: Considering All Expenses

When estimating costs, adopt a holistic mindset. It's not just about direct expenses like production costs or marketing budgets; consider both direct and indirect costs . Here's how:

- Direct Costs:

- These are the expenses directly tied to your product or service. Examples include raw materials, labor, manufacturing, and packaging costs.

- Example: Imagine you're launching a mobile app . Direct costs would include hiring developers, server hosting fees, and app store registration charges.

- Indirect Costs:

- These are less obvious but equally crucial. They encompass overhead expenses that indirectly impact your operations. Think rent, utilities, administrative salaries, and office supplies.

- Example: If you're running a small café, indirect costs include rent for the space, electricity bills, and salaries of non-customer-facing staff.

### 2. Breakdown by Project Phases

Estimating costs becomes more manageable when you break down your project into phases. Each phase has distinct expenses. Consider the following:

- Research and Development (R&D):

- During this phase, you invest in market research, prototype development, and feasibility studies.

- Example: A biotech startup researching a new drug would allocate funds for lab equipment, clinical trials, and patent applications.

- Production and Manufacturing:

- Here, you focus on turning ideas into tangible products. Costs include production facilities, machinery, and labor.

- Example: An eco-friendly clothing brand would budget for fabric sourcing, sewing machines, and skilled tailors.

- Marketing and Launch:

- Getting the word out requires marketing efforts. Allocate funds for advertising, PR, and launch events.

- Example: A software company launching a new app would set aside money for social media ads, influencer collaborations, and launch parties.

### 3. Contingency Planning: The Buffer Fund

No matter how meticulous your estimates, surprises happen. Create a contingency fund to handle unforeseen expenses. Aim for at least 10-20% of your total estimated costs. This buffer ensures you're prepared for unexpected setbacks.

- Example: A construction project might encounter delays due to weather conditions or permit issues. The contingency fund covers additional labor costs or materials needed to stay on track.

### 4. Tracking and Adjusting

cost estimation isn't a one-time task. Continuously track your actual expenses against estimates. Adjust as needed based on real-world data . Use accounting software or spreadsheets to monitor cash flow .

- Example: A small e-commerce business initially budgets $5,000 for advertising. After three months, they analyze results and find that Facebook ads perform better than Google ads. They adjust their allocation accordingly.

### Conclusion

Estimating costs involves a blend of art and science. Be thorough, consider all angles, and be prepared for the unexpected. Remember, accurate cost estimation is essential for financial stability and successful project execution.

Feel free to or additional examples!

## Mapping Out Funding Requirements Over Time

### 1. The Importance of a Well-Defined Timeline

A well-structured timeline serves as the backbone of your funding strategy. It provides clarity, accountability, and a roadmap for achieving financial goals. Here's why it matters:

- Strategic Planning : A timeline allows you to align funding needs with business objectives. It ensures that you secure funds when they are most critical—for product development, marketing campaigns, or operational scaling.

- Investor Confidence : Investors appreciate a clear plan. When you can articulate how funds will be utilized over time, it instills confidence. Investors want to know that their money will be put to good use and yield returns.

- Risk Mitigation : A timeline helps identify potential gaps in funding. By forecasting cash flow requirements, you can proactively address shortfalls and avoid disruptions.

### 2. Milestones: Key Markers Along the Journey

Milestones are pivotal moments that signify progress. They act as checkpoints, allowing you to evaluate whether you're on track. Consider the following:

- Product Development : If you're developing a new product, milestones could include completing prototypes, conducting user testing , and achieving regulatory approvals . For instance, a biotech startup might aim to reach phase II clinical trials within 18 months.

- Market Penetration : For an existing business, milestones might relate to market expansion. Examples include entering new geographic regions, securing partnerships, or hitting user acquisition targets. Imagine a software company aiming to capture 10% of the European market within two years.

- Financial Metrics : Financial milestones are crucial. These could be revenue targets, profit margins, or burn rate reduction . Suppose a SaaS company plans to achieve profitability by the end of Year 3—this becomes a critical milestone.

### 3. Funding Phases and Timing

Let's break down funding phases and their timing:

- Seed Funding : Early-stage startups seek seed funding to validate their concept. This phase typically spans 6 to 18 months. Milestones include building a prototype, conducting market research , and securing initial customers.

- Series A, B, C, etc. : As your business matures, you'll raise larger rounds. Each round has specific milestones. Series A might focus on scaling operations, while Series B aims for international expansion. Timelines vary but generally extend over 1 to 2 years per round.

- exit strategies : Even exit strategies have timelines. Whether it's an IPO or acquisition, plan ahead. For instance, if you're eyeing an IPO, consider the lead time required for regulatory approvals and investor roadshows.

### 4. Example: E-Commerce Startup

Let's illustrate with an e-commerce startup:

- Year 1 : secure seed funding . Develop the platform, onboard vendors, and launch. Milestone: Achieve 10,000 active users.

- Year 2 : Series A funding. scale marketing efforts , expand product range , and optimize logistics. Milestone: achieve positive cash flow .

- Year 3 : Series B funding. Enter international markets (e.g., Europe). Milestone: Establish partnerships with key retailers.

Remember, your funding timeline isn't set in stone. It's a dynamic tool that adapts as your business evolves. Regularly review and adjust based on actual progress. By mapping out funding requirements over time, you'll navigate the financial journey with confidence and purpose.

Feel free to ask if you need further insights or additional examples!

1. Bootstrapping: The Self-Reliant Approach

- Insight : Bootstrapping refers to funding your venture using your own resources, such as personal savings or revenue generated by the business itself. It's like pulling yourself up by your entrepreneurial bootstraps.

- Example : Imagine you're launching a small software startup. You decide to invest your own savings to cover initial expenses like website development, software licenses, and marketing materials. Bootstrapping allows you to maintain full control but may limit your growth potential.

2. Friends and Family: The Trust Circle

- Insight : Turning to friends and family for funding is common, especially in the early stages. These are people who believe in you and your vision.

- Example : Sarah wants to open a cozy neighborhood café. She convinces her supportive aunt and a few close friends to invest. They become her first investors, sharing both financial risk and emotional encouragement.

3. Angel Investors: Wings of Support

- Insight : Angel investors are high-net-worth individuals who invest their personal funds in startups. They often provide mentorship and connections.

- Example : Alex, an experienced entrepreneur, loves the idea behind a health tech startup . He invests $50,000 in exchange for equity. His guidance helps the founders navigate the industry.

4. Venture Capital (VC): The High-Stakes Game

- Insight : vcs invest in startups with high growth potential . They seek substantial returns and are willing to take calculated risks.

- Example : XYZ Robotics, a cutting-edge AI company, secures $5 million from a VC firm. In return, the VCs get a significant stake and a seat on the board. The pressure is on to scale rapidly.

5. Crowdfunding: The Collective Effort

- Insight : crowdfunding platforms allow you to raise funds from a large number of people (the crowd). It's like a digital town square .

- Example : Jane wants to create an eco-friendly fashion line. She launches a Kickstarter campaign, offering sustainable T-shirts as rewards. Supporters worldwide contribute small amounts, collectively funding her dream.

6. Grants and Competitions: The Quest for Recognition

- Insight : grants come from government agencies , foundations, or private organizations. competitions offer cash prizes for innovative ideas.

- Example : Dr. Patel's research on renewable energy wins a prestigious grant from the national Science foundation . The recognition boosts both funding and credibility.

7. Debt Financing: Borrowing with a Purpose

- Insight : Debt financing involves taking loans (with interest) to fund your venture. It's a common choice for established businesses.

- Example : The local bakery needs to expand. They secure a business loan from a bank to renovate the space, buy new equipment, and hire additional staff.

Remember, the right funding source depends on your goals, risk tolerance, and stage of development. Mix and match these options wisely, like a chef creating a flavorful dish. Bon appétit!

Exploring Different Options for Obtaining Funding - Funding Requirements: How to Determine How Much Funding You Need and When You Need It

Financial projections play a crucial role in determining the funding needs of a business. By forecasting revenue and expenses , businesses can gain insights into their financial future and make informed decisions about funding requirements. In this section, we will explore the importance of financial projections and how they can help businesses plan for their funding needs.

1. Gain a Comprehensive View: Financial projections allow businesses to assess their revenue and expenses over a specific period , typically one to five years. By considering various factors such as market trends , customer demand, and industry analysis, businesses can develop a comprehensive view of their financial outlook.

2. Forecast Revenue: One key aspect of financial projections is forecasting revenue . This involves estimating the amount of income a business expects to generate from its products or services. Businesses can consider historical data, market research, and sales forecasts to project future revenue accurately.

3. Estimate Expenses: Alongside revenue, financial projections also involve estimating expenses. This includes costs related to production, marketing, salaries, rent, utilities, and other operational expenses. By accurately estimating expenses, businesses can determine their funding needs to cover these costs.

4. Identify Funding Gaps: Financial projections help businesses identify any gaps between projected revenue and estimated expenses. This analysis allows businesses to determine if they require additional funding to bridge the gap . By understanding their funding needs, businesses can explore various funding options such as loans, investments, or grants.

5. Plan for Growth: financial projections provide insights into the financial feasibility of business growth plans. By analyzing revenue and expenses, businesses can assess if they have sufficient funds to support expansion initiatives. This helps in making strategic decisions about when and how much funding is required to fuel growth.

6. Highlight Financial Risks: financial projections also help in identifying potential risks and challenges that may impact a business's financial stability. By considering different scenarios and conducting sensitivity analysis , businesses can assess the impact of external factors such as economic downturns, market fluctuations, or changes in consumer behavior.

Forecasting Revenue and Expenses to Determine Funding Needs - Funding Requirements: How to Determine How Much Funding You Need and When You Need It

1. Risk Identification and Categorization:

- Insight : Before you can mitigate risks, you must identify them. Risks can be broadly categorized into several types:

- Market Risks : These relate to changes in market conditions, demand fluctuations, and competitive pressures.

- Operational Risks : These encompass internal processes, supply chain disruptions, and technology failures.

- Financial Risks : These include currency fluctuations, interest rate changes, and credit risks.

- legal and Regulatory risks : Compliance issues, lawsuits, and regulatory changes fall into this category.

- Strategic Risks : These pertain to the overall direction of the business, mergers, acquisitions, and partnerships.

- Example : Imagine a tech startup developing a new app. Market risks might involve user adoption rates , while operational risks could include server downtime or software bugs.

2. risk Assessment techniques :

- Insight : Various methods help assess risks:

- qualitative Risk assessment : This involves subjective judgment, ranking risks based on severity and likelihood.

- quantitative Risk assessment : Here, you assign numerical values to risks (e.g., using Monte Carlo simulations).

- Scenario Analysis : Create scenarios (best-case, worst-case, and most likely) to evaluate risks.

- Example : A manufacturing company might use quantitative analysis to estimate the financial impact of supply chain disruptions .

3. risk Mitigation strategies :

- Insight : Once you've identified risks, consider these strategies:

- Risk Avoidance : Eliminate the risk by not pursuing a particular course of action.

- Risk Reduction : Minimize the likelihood or impact of a risk (e.g., diversifying suppliers).

- Risk Transfer : Shift the risk to another party (e.g., through insurance or outsourcing).

- Risk Acceptance : Acknowledge the risk and have contingency plans.

- Example : A construction project might transfer the risk of equipment failure to a specialized maintenance contractor.

4. contingency Planning and resilience :

- Insight : Develop contingency plans for high-impact risks. Consider:

- business Continuity plans : How will you operate during disruptions?

- Emergency Funds : Set aside reserves for unexpected events.

- Scenario Testing : Simulate crises to assess preparedness.

- Example : A retail business should have a plan for handling sudden supply shortages due to natural disasters.

5. Monitoring and Adaptation:

- Insight : Risk assessment is an ongoing process. Regularly review risks and adapt your strategies.

- key Performance indicators (KPIs) : Monitor relevant metrics to detect early warning signs .

- Feedback Loops : Gather insights from stakeholders and adjust as needed.

- Example : A software development team continuously monitors project risks, adjusting timelines and resources accordingly.

Remember, risk assessment isn't about eliminating all risks—it's about making informed decisions and being prepared. By integrating risk management into your funding requirements, you'll navigate the entrepreneurial journey more effectively.

Evaluating Potential Risks and Mitigating Strategies - Funding Requirements: How to Determine How Much Funding You Need and When You Need It

developing a funding strategy is a crucial step in securing the required funding for your business. In this section, we will explore various insights from different perspectives to help you create an effective plan.

1. Understand Your Funding Needs: Start by assessing your financial requirements. Consider factors such as operational costs, research and development expenses , marketing budgets, and potential expansion plans. By understanding your funding needs, you can determine the amount of capital required.

2. Identify potential Funding sources : Explore different funding sources available to you. These may include traditional options like bank loans, venture capital firms , angel investors, or crowdfunding platforms. Each source has its own advantages and considerations, so it's important to evaluate which ones align with your business goals .

3. Craft a compelling Business plan : A well-crafted business plan is essential for attracting potential investors . It should outline your company's vision, market analysis, competitive advantage, financial projections, and funding requirements. Use examples and data to support your claims and demonstrate the potential return on investment .

4. Build Relationships with Investors: Networking and building relationships with potential investors can significantly enhance your funding prospects. attend industry events , pitch competitions, and investor conferences to connect with individuals who share an interest in your industry. Cultivate these relationships by showcasing your expertise and progress.

5. Consider Bootstrapping and Revenue Generation: Bootstrapping refers to funding your business using personal savings or revenue generated from early sales. This approach allows you to maintain control and ownership of your company. Additionally, focusing on revenue generation strategies can help reduce your reliance on external funding.

6. Evaluate Grant Opportunities: Research grant programs that align with your business objectives . Grants can provide non-dilutive funding and support for specific industries or innovative projects. Look for government grants, nonprofit organizations, or industry-specific grants that may be available to you.

7. Create a Realistic Financial Forecast: Develop a financial forecast that outlines your projected revenue, expenses, and cash flow. This will help you determine the funding required at different stages of your business's growth. Investors often scrutinize financial projections, so ensure they are realistic and based on thorough market research .

Remember, developing a funding strategy requires careful consideration and planning. By following these insights and creating a comprehensive plan, you can increase your chances of securing the required funding for your business.

Developing a Plan to Secure the Required Funding - Funding Requirements: How to Determine How Much Funding You Need and When You Need It

1. Gain insights from stakeholders: To effectively monitor and adjust funding requirements, it is essential to gather insights from key stakeholders such as management, investors, and financial advisors. Their perspectives can provide valuable input on the organization's financial goals, growth projections, and risk appetite.

2. analyze financial performance : A thorough analysis of the organization's financial performance is necessary to determine funding requirements. This includes assessing revenue streams , expenses, cash flow patterns , and profitability. By identifying any gaps or areas of improvement, adjustments can be made to align funding needs with the organization's financial goals.

3. Consider market conditions: external factors such as market trends, competition, and economic conditions play a significant role in determining funding requirements . For example, if the market is experiencing rapid growth, additional funding may be needed to seize new opportunities. Conversely, during economic downturns, a more conservative approach to funding may be necessary.

4. Evaluate project timelines: When monitoring funding requirements, it is crucial to consider the timelines of ongoing and upcoming projects. Each project may have different funding needs at various stages of development. By aligning funding with project milestones, organizations can ensure sufficient resources are available when needed.

5. Utilize financial forecasting : Financial forecasting techniques can provide valuable insights into future funding requirements. By analyzing historical data , market trends, and growth projections, organizations can estimate their funding needs over a specific period. This helps in planning and allocating resources effectively.

6. optimize capital structure : Monitoring funding requirements also involves optimizing the organization's capital structure . This includes evaluating the mix of debt and equity financing , assessing interest rates, and considering the cost of capital. By optimizing the capital structure, organizations can minimize financing costs and maximize returns for stakeholders.

7. Implement contingency plans: It is essential to have contingency plans in place to address unforeseen circumstances that may impact funding requirements. This could include having access to emergency funding sources, establishing lines of credit, or maintaining a reserve fund. Contingency plans provide a safety net and ensure the organization can adapt to changing financial needs.

Remember, these are general insights into monitoring and adjusting funding requirements. Each organization's specific circumstances may require additional considerations. By regularly reviewing and updating funding requirements, organizations can ensure they have the necessary resources to support their growth and financial objectives.

Regularly Reviewing and Updating Funding Requirements - Funding Requirements: How to Determine How Much Funding You Need and When You Need It

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What Is Business Financing?

Unless your business has the balance sheet of Apple, at some point you will probably need access to capital through business financing. Even many large-cap companies routinely seek capital infusions to meet short-term obligations . For small businesses, finding a suitable funding model is vitally important. Take money from the wrong source, and you may lose part of your company or find yourself locked into repayment terms that impair your growth for many years into the future.

Key Takeaways

• There are many ways to find financing for a small business.
• Debt financing is usually offered by a financial institution; it requires regular monthly payments until the debt is paid off.
• In equity financing, either a firm or an individual invests in your business (and you don’t have to pay the money back).
• If you decide to seek equity financing, the investor—whether it's a firm or an individual—now owns a percentage of your business (and perhaps even a controlling one).
• Mezzanine financing combines elements of both debt and equity financing: The lender usually has the option to convert unpaid debt into ownership in the company.

What Is Debt Financing?

Debt financing is a concept you may already be familiar with if you have a mortgage or an automobile loan. Both mortgages and automobile loans are forms of debt financing. Debt financing for a business comes from a bank or some other lending institution. Although private investors can offer debt financing to you, this is unusual.

Here is how debt financing works: When you decide you need a loan , you head to the bank and complete an application. If your business is in the early stages of development, the bank will check your personal credit.

For businesses that have a more complicated corporate structure—or have been in existence for an extended period—banks will check other sources. The  Dun & Bradstreet (D&B) file is one of the most important sources of information on the credit history of a business. In addition to the credit history of your business , the bank will likely examine your books and complete other  due diligence before agreeing to lend you any funds. Before applying, make sure all your business records are complete and organized.

If the bank approves your loan request, it will set up payment terms—including interest—and send the money to the business bank account you specify.

Advantages of Debt Financing

There are several advantages to financing your business through debt:

• The lending institution has no control over how you run your company, and it has no ownership.
• Once you pay back the loan, your relationship with the lender ends. That is especially important as your business becomes more valuable.
• The interest you pay on debt financing is tax deductible as a business expense.
• The monthly payment, as well as the breakdown of the payments, is a known expense that can be accurately included in your forecasting models.

Disadvantages of Debt Financing

However, debt financing for your business does come with some disadvantages:

• Adding a debt payment to your monthly expenses assumes that you will always have the capital inflow to meet all business expenses, including the debt payment. For small or early-stage companies, this may not always be true.
• Small business lending can be slowed substantially during recessions. In tougher times for the economy, it can be difficult to receive debt financing.

During economic downturns, it can be much harder for small businesses to qualify for debt financing.

The U.S. Small Business Administration (SBA) works with certain banks to offer small business loans . A portion of the loan is guaranteed by the government. Since SBA loans are designed to decrease the risk to lending institutions, these loans allow business owners who might not otherwise be qualified to receive debt financing. You can find more information about these and other SBA loans on the SBA’s website.

What Is Equity Financing?

Equity financing comes from investors, who are referred to as venture capitalists or angel investors .

A venture capitalist is usually a firm, rather than a single individual. The firm has partners, teams of lawyers, accountants, and investment advisors who perform due diligence on potential investments. Venture capital firms often deal in significant investments, so the process is slow and the financing is often complex.

Angel investors, by contrast, are generally wealthy individuals who want to invest a smaller amount of money into a single product—instead of building a business. An ideal candidate for an angel investor, for example, is a software developer who needs a capital infusion to fund their product development. Typically, angel investors move fast and want simple terms.

Equity financing comes from an investor, not a lender. if you end up in bankruptcy, you do not owe anything to the investor, who, as a part owner of the business, simply loses their investment.

Advantages of Equity Financing

Funding your business with funds from investors has several advantages:

• The biggest advantage of equity financing is that you don't have to pay back the money. If your business enters bankruptcy, your investors are not creditors. They are partial owners in your company; their money is lost along with your company.
• You don't have to make monthly payments, so there is often more liquid cash on hand for operating expenses.
• Investors understand that it takes time to build a business. With equity financing, you get the money you need—without the pressure of your product or company being required to thrive within a short period of time.

Disadvantages of Equity Financing

Similarly, there are several disadvantages to equity financing:

• When you raise equity financing, it involves giving up ownership of a portion of your company. The more significant (and riskier) the investment, the more of a stake the investor will want. You might have to give up 50% of your company. Unless you later construct a deal to buy the investor’s stake, as a partner they will take 50% (or more) of your profits, indefinitely.
• With equity financing, you'll be required to consult with your investors before making any business decisions; if an investor has more than 50% of your company, you have a boss now.

What Is Mezzanine Financing?

A lender is always looking for the best value for its money—with the least amount of risk. The problem with debt financing is that the lender does not share in the business's success. All the lender receives is its initial funding—plus interest—while taking on the risk of default. That interest rate will not provide an impressive return—it will likely only offer single-digit returns.

Mezzanine financing often combines the best features of equity and debt financing . Although there is no set structure for this type of business financing, debt capital often gives the lending institution the right to convert the loan to an equity interest in the company if you do not repay the loan on time—or in full.

Mezzanine financing is not as common as debt or equity financing . The deal, as well as the risk-reward profile, is specific to each party.

Advantages of Mezzanine Financing

Choosing to use mezzanine financing comes with several advantages:

• This type of loan is appropriate for a new company that is already showing growth. Banks may be reluctant to lend to a company that does not have at least three years of financial data. However, a newer business may not have that much data to supply. By adding an option to take an ownership stake in the company, the bank has more of a safety net, which can make it easier to secure this type of loan.
• Mezzanine financing is treated as equity on the company’s balance sheet . Showing equity—rather than a debt obligation—makes the company look more attractive to future lenders.
• Mezzanine financing is often provided very quickly.

Disadvantages of Mezzanine Financing

There are some disadvantages to securing mezzanine financing:

• The coupon or interest is often higher because the lender views the company as high risk. Mezzanine financing provided to a business that already has debt or equity obligations is often subordinate to those obligations, increasing the risk that the lender will not be repaid. Because of the high risk, the lender may want to see a 20% to 30% return.
• Much like equity financing, the risk of losing a significant portion of the company is genuine.

Off–balance sheet financing is good for one-time large purposes, allowing a business to create a special purpose vehicle (SPV) that carries the expense on its balance sheet, making the business seem less in debt.

Off–balance sheet financing (OBSF) is not a type of loan. It is a strategy a company can use to keep large purchases (or debts) off its balance sheet, which can make the business look stronger (and less debt-laden). For example, if a company needed an expensive piece of equipment, it could lease it instead of buying it—or it could create a special purpose vehicle (SPV) to hold the purchase on its balance sheet. The sponsoring company often overcapitalizes the SPV to make it look attractive in the event the SPV needs a loan to service the debt.

Off–balance sheet financing is strictly regulated, and generally accepted accounting principles (GAAP) govern its use. This type of financing is not appropriate for most businesses, but it may become an option for small businesses after they achieve a larger corporate structure.

If your funding needs are relatively small, you may want to first pursue a less formal type of financing. Family and friends who support your business can offer advantageous and straightforward repayment terms. And you can set up a lending model similar to some of the more formal models. For example, you could offer them stock in your company—or pay them back just as you would a debt financing deal, in which you make regular payments with interest.

You can borrow from your retirement plan and pay that loan back with interest. However, an alternative—called Rollover for Business Startups (ROBS) —has emerged as a practical source of funding for those who are starting a business. When appropriately executed, ROBS allows entrepreneurs to invest their retirement savings into a new business venture—without incurring taxes, early withdrawal penalties, or loan costs. However, ROBS transactions are complex, so working with an experienced and competent advisor to conduct these transactions is essential.

How Do You Finance a Business?

There are many ways to finance your new business. You could borrow from a certified lender, raise funds through family and friends, finance capital through investors—or even tap into your retirement accounts, although this isn't recommended in most cases. Companies can also use asset financing , which entails borrowing funds using balance sheet assets as collateral.

Equity financing is the process of raising capital by selling shares in your company . If you finance your business using equity financing, your investors will own a stake in your business.

Can I Borrow From My 401(k) to Start a Business?

You may take out a loan from your 401(k), but this is not always advisable. Most plans allow you to withdraw a maximum of $10,000—or 50% of your vested balance (whichever is greater)—but there is a $50,000 cap. There are strict rules on repaying your account. If you go this route, make sure you can pay yourself back. It can be risky to take out a loan to fund a start-up because most people have to keep their traditional day job with their employer. If you leave with a loan on your plan, you will be required to repay the loan—plus taxes and penalties for an early withdrawal.

Every business eventually needs financing. It can be advantageous for your business to avoid financing from a formal source, but not everyone has this option. If you do not have family or friends who are willing to support your company, debt financing is likely the most accessible source of funds for a small business. You can grow the credit profile of your business with on-time, regular payments.

As your business grows—or reaches later stages of product development—equity financing or mezzanine financing may become options.

Dun & Bradstreet. " About Us ."

Internal Revenue Service. " Guide to Business Expense Resources ."

U.S. Small Business Administration. " Loans ."

Dr. Ajay Tyagi. " Capital Investment and Financing for Beginners ," Page 150. Horizon Books, 2017.

Accounting Tools. " Mezzanine Financing Definition ."

U.S. Securities and Exchange Commission. " Final Rule: Disclosure in Management's Discussion and Analysis About Off-Balance Sheet Arrangements and Aggregate Contractual Obligations ."

Internal Revenue Service. " Rollovers as Business Start-Ups Compliance Project ."

Internal Revenue Service. " Retirement Plans FAQs Regarding Loans ," See #4.

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How to Write the Funding Request for Your Business Plan?

Startup Fundraising Checklist

• May 7, 2024

Funding requests are one aspect where the “under promise and over deliver” phenomenon might not work.

Set your business valuation too high, and investors might not invest. In contrast, value it too low, and you might end up receiving way less than what you’re truly worth.

Moreover, if I were to invest in your business, I would want to know why you are raising funds and how they will be used.

In short, a well-planned funding request with the purpose of fund-raise and a realistic ask is key to securing funds. You cannot mess up.

Need help writing the funding request for your business plan ? Here’s our quick guide on writing a compelling and realistic funding request to ensure you don’t miss out.

Let’s dive right in.

What is the funding request?

The funding request section of a business plan is an official section for the organizations to ask for new funding. It outlines the amount of funding needed, the purpose of the funds, how they will be used, and in what timeline they will be used (generally for 5 years).

The main goal of a funding request is to secure the necessary capital to start or expand a business, fund a project, or achieve a specific objective.

How to write your business plan funding request

How you write your funding request heavily depends on why you’re raising funds—the purpose. So, before you start writing, be clear about your requirements and the purpose of fundraising.

Your purpose can be hiring new staff, getting the latest equipment, launching a new product, or starting or expanding a business.

Once you do that, you may start working on your funding request; follow these steps:

1. Provide business information

Start by providing a brief overview of your business. I know—you’ve already included all the information in the prior sections, but adding it here would be an opportunity for you to give your investors a little recap.

No, it does not get redundant—It doesn’t have to be. So don’t worry.

Moreover, sometimes, you only need to send the funding request, not the entire business plan. In such cases, such information makes sense and comes in handy.

So, here’s what you will have to explain in the funding request section of your business plan:

• Target Market
• Your business structure like LTD, LLC, or more
• Brief about your product/service
• Partners involved
• Business heir, if there exists.

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2. Present the current financial situation

You might have provided some financial information in the financial section. But, you have to add some figures here anyway. Not only will it be contextual but easier to have a clear picture in one place.

Here are some financial details that you will have to include in this section:

• Quarterly as well as yearly cash inflow and outflow
• Balance sheets
• P&L statement
• Expected financial condition in the upcoming quarter and year
• Include the list of assets and their ownership details if you are asking loan from the bank or applying for any grant
• Break-even point
• If your business is in debt, explain the situation in detail and brief plan for paying it
• Mention how much return on investment can they expect
• In the end, mention how will you pay off the loan or transfer the ownership of the business

3. Announce how much funds you need

When you explain the situation in brief and have all the facts and figures put aside, narrow it down to your requirements. Mention how much money you need.

For that, you will need to calculate your startup costs or the total costs of the activity for which you need funding.

Finally, justify your funding request by explaining how the investment will benefit your organization and contribute to its growth and success.

4. Discuss how you will use the money

Here, you have to narrow down what you need the money for and how you are going to use it. Just list down the details and put the figure for it—so much like how you do your billing. If you are taking the money for multiple things, highlight every detail.

Some examples of various areas where you might use the funding are:

• Product development
• Marketing and advertising
• Operational expenses
• Technological integration

5. Explain current and future financial planning

You must have explained a little about the inflow and outflow in the financial section of a business plan . But over here, you have to get into the details like:

• If you are getting a loan, outline your timelines for payments.
• If you are looking forward to selling, mention how it will affect the investors.
• And then, finally, mention the exit strategy. Your exit strategy includes how you will transfer the business ownership.

Key points to remember

As we now know what to include in the funding request, let’s see certain points that you need to keep in mind while writing it:

Target audience’s perspective . Applying for a loan is different from approaching an investor. Each of these situations involves different contract terms, types of funding, or amounts of money.

Clarity . Clearly explain with numbers how much funding is required, why you need it, and where you will use it. Also, keep your language for funding requests simple so that everyone can understand.

Realistic financial projections . Provide realistic financial projections so investors can feel confident about your business and trust you with an investment.

Call-to-action . Include a clear call-to-action that encourages investors to take the next steps, whether that’s scheduling a meeting or making an investment.

These may seem like simple tips, but they can help you write a strong funding request that gets investors interested in your business.

As a wrap-up, writing a compelling funding request requires a strategic approach and attention to detail. So, being carefully and include realistic projections.

If you are still confused about writing a funding request, you can leverage business planning software and make your business plan investment-ready.

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Frequently Asked Questions

Do i need a business plan to get funding.

Yes, a business plan is necessary for securing funding for a business. It allows investors and lenders to grasp the company’s vision and mission. A well-thought-out business plan increases your chances of securing funding.

How do I determine the amount of funding to request?

To determine the amount of funding, you will need to assess your organization’s startup costs, forecast cash flow, and consider growth plans.

Taking the help of an AI business plan generator or a financial advisor can help you determine a realistic funding amount based on your business’s needs and goals.

Do I need financial projections in my funding request?

Yes, including financial projections in a funding request is important. It provides potential investors or lenders with a clearer understanding of your finances. Usually, you should add a crux of your finances for at least three years.

About the Author

Upmetrics Team

Upmetrics is the #1 business planning software that helps entrepreneurs and business owners create investment-ready business plans using AI. We regularly share business planning insights on our blog. Check out the Upmetrics blog for such interesting reads. Read more

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6 Types of Funding for Startups: Definitive Guide

Turning a brilliant idea into a successful startup requires more than just a stroke of genius. It demands a strategic blend of innovation, perseverance, and, perhaps most importantly, access to the right type of funding. In a world where startups are the driving force behind disruptive technologies and economic growth, understanding the different types of funding for startups and the various avenues for startup fundraising has become paramount for aspiring entrepreneurs. 

In the fast-paced and competitive startup landscape, funding can be the difference between launching a game-changing venture and becoming a mere statistic. However, not all startup funding is created equal, and understanding the diverse array of funding options is crucial for startup founders. This comprehensive guide will shed light on different types of funding for startups, outlining their characteristics, benefits, and potential drawbacks. 

So, whether you’re a visionary ready to take the plunge or a seasoned founder looking to secure additional capital, this definitive guide to the six types of funding for startups will navigate you through the labyrinth of financing options and empower you to make informed decisions.

Self-funding or Bootstrapping

Self-funding, also known as bootstrapping, refers to the practice of using personal savings, taking out personal loans, or generating revenue from the business itself to finance the startup’s operations and growth. It is a common approach for founders who are starting or growing their businesses without external investors. 

Pros of Bootstrapping:

Control and Independence: By self-funding, founders retain full control over their business decisions without external investors influencing strategic choices. They have the freedom to shape the direction and vision of the company according to their own values.

Flexibility and Agility: Bootstrapped startups can be more nimble and adaptive in responding to market changes and customer needs. They are not bound by investor expectations and can quickly adjust their strategies without lengthy approval processes.

Focus on Revenue Generation: Without the pressure of repaying external investors or meeting specific growth targets, bootstrapped founders can prioritize revenue generation from the early stages. This focus on sustainable profitability can lead to a more stable and self-sufficient business model.

Cons of Bootstrapping:

Limited Resources: Bootstrapping often means working with limited financial resources, which can constrain growth opportunities. The lack of external funding might limit your ability to invest in marketing, hire top talent, or scale operations quickly.

Slower Growth Trajectory: Without significant capital injections, bootstrapped startups may experience slower growth compared to their venture-backed counterparts. Limited resources can hinder the ability to seize market opportunities and expand rapidly.

Financial Risk: Self-funding puts the founder’s personal finances at stake. In the event of business failure, personal savings or assets may be at risk, and the founder bears the full financial responsibility.

Tips for Effective Bootstrapping:

Careful Budgeting: Develop a detailed budget and track expenses meticulously. Prioritize essential expenditures and avoid unnecessary costs. Consider adopting lean principles to optimize resource allocation.

Seek Cost-Effective Resources: Explore affordable alternatives when it comes to software, office space, and equipment. Leverage free or low-cost tools, open-source software, and co-working spaces to minimize expenses.

Embrace Creativity and Resourcefulness: Find innovative ways to generate revenue and leverage existing assets. Explore partnerships, collaborations, and barter arrangements to access resources without significant financial outlays.

Learn from Experienced Entrepreneurs: Connect with experienced entrepreneurs who have successfully bootstrapped their own businesses. Seek their advice, learn from their strategies, and understand the challenges they faced along the way.

Focus on Customer Value: Prioritize delivering exceptional value to customers. By understanding their pain points and offering compelling solutions, bootstrapped startups can attract loyal customers and generate revenue.

Bootstrapping is not without its challenges, but it can be a viable option for business owners who value independence and control over their business. By implementing effective financial management, resource optimization, and strategic decision-making, bootstrapped startups can overcome limitations and build a strong foundation for sustainable growth.

Funding Rounds

In the realm of startup financing, funding rounds serve as pivotal milestones that enable startups to secure the necessary capital to fuel their growth and expansion. These rounds represent specific stages in a startup’s journey and involve raising different types of funding for startups from external investors. Understanding the intricacies of funding rounds is essential for entrepreneurs seeking to navigate the complex landscape of startup financing.

Each funding round, such as Series A, Series B, Series C, Series D, and Series E, carries its own characteristics, expectations, and implications. Business owners must be well-versed in the distinctions between these rounds to effectively plan when considering different types of funding for startups.

Series A funding represents a critical stage in a startup’s growth journey and is typically the first significant round of external funding. It comes after the initial seed funding or self-funding stage and focuses on scaling the company and bringing the product or service to a broader market. Series A funding provides startups with the necessary resources to accelerate their growth and achieve key milestones.

Typically, Series A funding raises around $2 million to $15 million, although the exact amount can vary depending on the industry, location, and individual startup. The stage of the company during Series A funding is often the early stage, where the business has established a proof of concept, demonstrated market traction, and requires capital to further develop its product or service.

In Series A funding, the types of investors involved usually include venture capitalists, angel investors, and seed funds. These investors bring not only financial support but also valuable expertise, industry connections, and guidance to help startups navigate their growth challenges.

Examples of successful companies that have gone through Series A funding include Uniplaces, a startup that raised $3.5 million in Series A funding . This funding round enabled Uniplaces to expand its online marketplace for student accommodation and fuel its international growth, ultimately becoming a significant player in the industry.

Seeking Series A funding offers several advantages for startups. It provides a significant influx of capital that can be crucial for scaling operations, hiring key talent, and investing in marketing efforts. Additionally, the involvement of experienced investors can bring valuable industry knowledge, strategic guidance, and networking opportunities.

Series B funding represents a stage of growth for startups that have already established their product-market fit and are looking to scale their operations and capture a larger market share. It typically occurs after Series A funding and focuses on accelerating growth and expanding the company’s reach.

During Series B funding, startups typically raise around $10 million to $60 million, although the amount can vary depending on the specific needs of the business. At this stage, the company has progressed beyond the early stage and has achieved significant milestones, such as increasing revenue, acquiring more customers, and demonstrating strong growth potential.

The types of investors involved in Series B funding often include venture capitalists, private equity firms, and strategic investors who bring not only capital but also industry expertise and connections. These investors are attracted to the startup’s growth trajectory and the potential for substantial returns on their investment.

Successful examples of startups that have gone through Series B funding include companies like Airbnb and Dropbox . These companies raised significant amounts of capital during their Series B rounds, which played a crucial role in their expansion and scaling efforts.

Seeking Series B funding offers several advantages for startups. It provides substantial capital infusion, enabling the company to invest in scaling operations, expanding its team, enhancing its infrastructure, and executing strategic initiatives. Moreover, the involvement of experienced investors can bring valuable guidance, strategic partnerships, and credibility to the startup.

Series C funding represents a stage of growth where startups have already achieved significant traction, established a strong market position, and are looking to expand further. This round of funding focuses on fueling expansion, geographic reach, product diversification, and potentially preparing for an exit event.

During Series C funding, startups typically raise around $20 million to $100 million, although the amount can vary based on the specific needs and goals of the company. At this stage, the startup is in the growth phase, has a proven business model, and aims to solidify its market position.

Series C funding typically involves the participation of institutional investors, private equity firms, and corporate investors who recognize the startup’s potential for further growth and value creation. These investors bring not only capital but also industry expertise, strategic guidance, and potential acquisition opportunities.

Examples of companies that have raised Series C funding include notable startups like Uber and SpaceX. This funding round enabled them to expand globally, develop new products, and pursue ambitious growth plans.

Seeking Series C funding offers several benefits for startups. It provides significant capital to support geographic expansion, fuel product diversification, and potentially make strategic acquisitions. The involvement of experienced institutional investors and corporate partners can also bring valuable industry knowledge, resources, and potential synergies. 

Series D funding represents a stage of funding that occurs when a startup has already achieved significant growth and market success, and requires additional capital to further scale operations, enter new markets, or make strategic acquisitions.

During Series D funding, startups typically raise significant amounts of capital, ranging from $50 million to several hundred million dollars or more. The exact amount raised depends on the specific needs and growth plans of the company. At this stage, the startup has often established itself as a market leader or prominent player within its industry.

Series D funding typically involves a mix of investors, including venture capitalists, private equity firms, and strategic investors. These investors are attracted to the startup’s proven business model, market position, and growth potential.

Successful examples of startups that have gone through Series D funding include companies like Palantir and WeWork. Series D funding played a crucial role in fueling their continued growth and expansion into new markets.

Seeking Series D funding offers significant advantages for startups. It provides substantial capital to support scaling efforts, enter new markets, invest in research and development, and potentially prepare for an initial public offering (IPO) or another exit event. 

Series E funding represents a stage in the startup financing process that typically occurs when a company has achieved substantial growth, has a proven business model, and requires additional capital to continue scaling operations, pursue strategic initiatives, or prepare for an exit event.

The characteristics of a Series E round can vary widely depending on the specific circumstances of the company. The amount of capital typically raised in Series E funding can range from tens of millions to hundreds of millions of dollars. The purpose of the funding often includes further market expansion, product development, strategic acquisitions, or preparing for an IPO.

Startups that reach Series E funding have usually established themselves as market leaders or significant players within their industries. They have demonstrated sustainable growth, strong financial performance, and the ability to generate substantial revenues.

Examples of companies that have raised Series E funding include well-known startups such as Airbnb and Stripe. These funding rounds have enabled them to fuel their continued growth, enter new markets, and expand their product offerings.

Seeking Series E funding offers several benefits for startups. It provides substantial capital to support strategic initiatives, market expansion, and potential IPO preparations.

Crowdfunding

Crowdfunding is a method of raising capital from a large number of individuals, typically through online platforms, to fund a project or business venture. It provides an alternative to other types of funding for startups methods by allowing entrepreneurs to tap into a broad network of potential backers.

There are various models of crowdfunding , including rewards-based crowdfunding and equity-based crowdfunding.

Rewards-based Crowdfunding:

Rewards-based crowdfunding involves offering backers a non-financial incentive, such as a product or service, in exchange for their financial support. Entrepreneurs set a funding goal and a timeframe within which they aim to raise the required funds. Platforms like Kickstarter and Indiegogo are popular for rewards-based crowdfunding.

Equity-based Crowdfunding:

Equity crowdfunding allows entrepreneurs to offer a stake in their company to investors in exchange for funding. This model allows backers to become shareholders and potentially share in the future profits of the venture. Equity crowdfunding platforms like SeedInvest and Crowdcube facilitate these types of campaigns.

Pros of Crowdfunding:

Access to Capital: Crowdfunding provides an opportunity to access capital from a wide range of individuals who believe in the project or product. It can be especially beneficial for startups that may struggle to secure funding through traditional means.

Wider Exposure: Crowdfunding campaigns often generate significant publicity, which can result in increased brand awareness and exposure. This exposure can attract potential customers, partners, and even traditional investors.

Market Validation: A successful crowdfunding campaign can serve as a validation of market demand for the product or service. It allows entrepreneurs to gauge customer interest and fine-tune their offering based on early feedback.

Early Adopter Engagement: Crowdfunding campaigns allow entrepreneurs to engage with early adopters and passionate supporters who become advocates for the product or service. These individuals can provide valuable insights, feedback, and word-of-mouth marketing.

Cons of Crowdfunding:

Time and Effort: Running a successful crowdfunding campaign requires careful planning, execution, and ongoing effort. It can be time-consuming, diverting the attention of the team away from other important activities.

Risk of Failure: Crowdfunding campaigns are not guaranteed to succeed. If a campaign fails to reach its funding goal, the entrepreneur may not receive any funds, and the time and effort invested in the campaign may go to waste.

Increased Competition: The popularity of crowdfunding has led to a crowded marketplace, making it more challenging to stand out among other campaigns. Differentiating the product or project and effectively reaching the target audience becomes crucial.

Accountability to Backers: Crowdfunding often involves fulfilling rewards or delivering on promised milestones. Entrepreneurs must carefully manage communication and deliver on their commitments to maintain trust and credibility with backers.

Tips for Running a Crowdfunding Campaign:

Build a Compelling Pitch: Clearly communicate the unique value proposition, the problem your product or project solves, and why people should support it. Use engaging visuals, videos, and storytelling to capture attention.

Set Realistic Goals: Set a funding goal that aligns with your financial needs and market demand. It should be attainable within the given timeframe to maintain momentum and credibility.

Engage with Backers: Actively engage with your backers throughout the campaign. Respond to comments, provide updates, and show appreciation for their support. Building a community around the campaign can contribute to its success.

Leverage Social Media and Networks: Utilize social media platforms, email newsletters, and personal networks to spread the word about your campaign. Encourage friends, family, and early supporters to share the campaign with their networks.

Startup Loan

Startup loans are a popular financing option for entrepreneurs seeking capital to launch or expand their businesses. However, they differ from other types of funding for startups. Loans provide the necessary funds to cover initial expenses, invest in equipment, hire employees, and fuel growth. In this section, we will explore several types of traditional business loans. These include SBA loans, credit card loans, short-term loans, and loans from friends and family. Each loan type has its own eligibility requirements, terms, and advantages and disadvantages. 

SBA (Small Business Administration) loans are government-backed loans designed to support small businesses. These loans are provided by participating lenders, with the SBA guaranteeing a portion of the loan amount. Eligibility requirements typically include having a solid business plan, demonstrating good credit history, and meeting specific size standards. SBA loans offer competitive interest rates, longer repayment terms, and flexibility in their use. However, the application process can be time-consuming, and collateral may be required.

Credit Card Loans

Credit card loans involve using credit cards to finance startup expenses. Entrepreneurs can utilize their personal or business credit cards to access funds. Eligibility requirements depend on the credit card issuer and may involve having a good credit score and established credit history. Credit card loans provide convenience and quick access to funds. They are suitable for smaller financing needs and can help establish credit history for the business. However, credit card loans often come with high-interest rates and can lead to excessive debt if not managed properly. 

Short-term Loans

Short-term loans are typically provided by online lenders and have a relatively short repayment period, usually ranging from a few months to a year. These loans are designed to provide immediate working capital for startups. Eligibility requirements may vary, but they generally require a minimum credit score, proof of business income, and time in operation. Short-term loans offer quick approval and funding, making them suitable for immediate funding needs. However, they often come with higher interest rates and may require frequent repayments. 

Friends and Family Loans

Loans from friends and family involve borrowing funds from individuals within your personal or professional network. Eligibility requirements are typically more flexible and may depend on the agreement between the parties involved. Friends and family loans offer flexibility in terms, repayment schedules, and potentially lower interest rates. This type of loan can be an attractive option for startups with limited credit history or difficulty obtaining traditional financing. However, it is important to approach such loans with professionalism and clear repayment terms to preserve relationships. 

Securing a Startup Loan

To effectively secure a startup loan, consider the following tips and strategies:

Develop a solid business plan: A well-crafted business plan showcases your vision, market analysis, and financial projections, increasing your chances of loan approval.

Build a strong credit history: Maintain a good personal and business credit score by paying bills on time, reducing debt, and resolving any credit issues.

Seek advice from professionals: Consult with experienced professionals such as accountants or business advisors who can guide you through the loan application process and help you choose the most suitable option.

Research and compare loan options: Explore multiple lenders and loan types to find the best terms, interest

Startup Grants

Startup grants are non-repayable funds provided to entrepreneurs and early-stage businesses to support their growth and development. Unlike loans, grants do not need to be paid back, making them an attractive source of funding for startups. These grants can come from various sources, including federal, state, and private organizations. In this section, we will explore the different types of startup grants available, their eligibility requirements, application process, and terms.

Types of Grants:

Federal Grants: The U.S. government offers a range of grant programs to support startups and small businesses. Examples include the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. Eligibility requirements may include being a for-profit business, conducting research and development activities, and aligning with specific agency objectives. The application process typically involves submitting a detailed proposal outlining the project and its potential impact.

State Grants: State governments also provide grants to support local startups. These grants may be specific to certain industries or targeted at promoting economic development within the state. Eligibility requirements and application processes vary by state and program. Startups may need to demonstrate the potential for job creation, innovation, or community impact to be considered for state grants.

Private Grants: Private organizations, foundations, and corporations offer grants to support entrepreneurial ventures. These grants can be industry-specific, socially-focused, or targeted at specific demographics. Eligibility requirements and application processes are determined by the grant provider. Startups may need to demonstrate alignment with the grant’s mission or provide evidence of their potential for growth and impact.

Pros and Cons of Startup Grants

Non-repayable funding: Grants provide capital without the need for repayment, allowing startups to invest in growth and development without incurring debt.

Equity-free funding: Unlike investments, grants do not require the startup to give up equity, allowing founders to retain ownership and control of their business.

Validation and credibility: Securing a grant can enhance a startup’s reputation, demonstrating recognition and support from reputable organizations or government agencies.

Competitive application process: Startup grants are highly competitive, with limited funding available. Startups must differentiate themselves and their projects to stand out among other applicants.

Stringent eligibility criteria: Grants often have specific eligibility requirements, such as industry focus, location, or project objectives. Startups must ensure they meet the criteria before applying.

Reporting and compliance: Grant recipients may be required to provide progress reports, demonstrate proper use of funds, and adhere to specific regulations or guidelines.

Tips for Seeking and Applying for Startup Grants:

Research grant opportunities: Thoroughly research available grants to find those that align with your business, industry, or project. Look for federal, state, and private grants that support your specific needs.

Understand eligibility requirements: Carefully review the eligibility criteria for each grant to determine if your startup meets the requirements. Ensure that your business and project align with the grant’s objectives.

Prepare a compelling application: Develop a well-written and persuasive grant application. Clearly articulate your business idea, its potential impact, and how the grant funds will be utilized. Provide supporting data and evidence to strengthen your application.

Seek professional assistance: Consider working with experienced grant writers or consultants who can help navigate the application process, improve your chances of success, and ensure compliance with grant requirements.

Leverage your network: Utilize your professional network, including mentors, industry contacts, or members of the Founder’s Network community, to gather information, seek advice, and potentially connect with grant providers.

Venture Capital

Venture capital is a form of private equity financing provided to high-potential startups and early-stage companies by venture capital firms or individual investors known as venture capitalists. VCs invest capital in exchange for equity or ownership stakes in the company, with the expectation of significant returns on their investment. In addition to funding, venture capitalists often provide strategic guidance, industry expertise, and valuable connections to help startups succeed. Among the various types of funding for startups, it is often VC funding that emerges as the predominant source driving the creation of unicorns.

The process of securing VC funding typically involves the following steps:

Identification and evaluation: Startups seeking venture capital need to identify potential investors whose investment focus aligns with their industry, stage of development, and growth potential. Extensive research and due diligence are crucial to find the right venture capital firms or individual investors.

Pitching and negotiations: Startups prepare a compelling pitch deck and business plan to present to potential investors. If interested, venture capitalists may conduct further due diligence and engage in negotiations regarding the investment terms, valuation, and equity ownership.

Investment and support: Once an agreement is reached, venture capitalists provide funding to the startup in exchange for equity. They often take an active role in the company, offering guidance, mentorship, and leveraging their network to help accelerate growth and maximize value.

Pros and Cons of Seeking Venture Capital Funding

Access to substantial funding: Venture capital can provide startups with significant capital to fuel growth, expand operations, and develop new products or services.

Strategic guidance and expertise: Venture capitalists bring valuable industry knowledge, experience, and connections, which can help startups navigate challenges, make informed decisions, and scale their business.

Validation and credibility: Securing funding from reputable venture capital firms validates a startup’s potential and can attract further investment, partnerships, and customer confidence.

Equity dilution: Venture capital funding often requires startups to give up a portion of their ownership and control. Founders need to carefully consider the trade-off between equity dilution and the benefits of funding and expertise provided by venture capitalists.

Pressure for fast growth and exit: Venture capitalists expect high returns on their investments within a specific timeframe. This pressure can lead to a focus on rapid growth and a potential need for a quick exit, which may not align with every startup’s long-term vision.

Takeaways for founders seeking venture capital funding include:

Focus on building relationships: Establish meaningful connections with venture capitalists before seeking funding. Attend industry events, network, and engage in conversations to build trust and familiarity.

Prepare a compelling pitch: Craft a concise and compelling pitch deck that clearly communicates your business model, market opportunity, competitive advantage, and growth strategy. Highlight your team’s expertise and achievements.

Show traction and scalability: Demonstrating traction through customer acquisition, revenue growth, or partnerships strengthens your case for investment. Showcase the scalability of your business model to attract venture capitalists seeking high-growth opportunities.

Seek advice and mentorship: Surround yourself with experienced advisors and mentors who have successfully navigated the venture capital landscape. Their guidance can help you refine your strategy, valuation, and negotiations.

Evaluate compatibility: Choose venture capitalists who not only provide financial backing but also align with your vision, values, and long-term goals. Look for investors who understand your industry, can contribute strategic guidance, and bring valuable networks to the table.

Angel Investors

Angel investors are individual investors who provide capital to startups in exchange for equity ownership. Unlike venture capitalists, who often invest funds from a larger pool of capital, angel investors use their personal funds to support early-stage businesses. Angel investors are typically experienced entrepreneurs, industry professionals, or high-net-worth individuals seeking to invest in promising startups.

Here are the pros and cons of seeking angel investment:

Access to capital: Angel investors provide startups with the necessary funds to launch and grow their businesses, without the need for traditional loans or giving up control.

Expertise and connections: Angel investors often have extensive industry knowledge and valuable networks. They can offer guidance, mentorship, and introductions to potential customers, partners, or follow-on investors.

Flexible terms: Angel investments can be structured in various ways, allowing founders and investors to negotiate terms that align with the startup’s needs and growth trajectory.

Dilution of ownership: Similar to venture capital, angel investment requires giving up equity in the company. Founders must carefully consider the trade-off between funding and equity dilution.

Potential for conflicts: Angel investors may have different perspectives, priorities, or expectations than the founders. It’s important to establish clear communication and alignment on goals to avoid potential conflicts down the road.

Limited availability: Angel investors typically invest in a limited number of startups, and finding the right angel investor who shares your vision and is willing to invest can be a challenge.

Tips and Strategies for Seeking Angel Investment

Develop a compelling pitch: Craft a concise and compelling pitch deck that clearly communicates your business model, market opportunity, and growth potential. Highlight your team’s expertise and achievements to attract angel investors.

Leverage your network: Utilize your professional network, industry connections, and the Founder’s Network community to find potential angel investors. Attend startup events, pitch competitions, and angel investor networks to make meaningful connections.

Demonstrate traction and market potential: Angel investors are often attracted to startups that have demonstrated traction, customer validation, or early revenue. Show evidence of market demand and scalability to pique investor interest.

Seek angel investors aligned with your industry: Look for angel investors who have experience or connections in your industry. They can provide valuable insights, mentorship, and strategic guidance specific to your business.

Conduct due diligence on potential investors: Evaluate potential angel investors beyond their financial capacity. Consider their track record, investment portfolio, industry expertise, and the value they can bring beyond capital.

FAQs About the Different Types of Funding for Startups

What are the types of funding i should go after for my web startup.

For a web startup, there are several types of startup funding you can consider:

Bootstrapping: Using your own personal savings or revenue generated by the business to fund your startup. This allows you to maintain full control but may limit your initial resources.

Friends and Family: Seeking financial support from friends and family who believe in your vision and are willing to invest in your startup.

Angel Investors: Angel investors are individuals who provide capital in exchange for equity ownership in early-stage companies. They often bring industry expertise and connections along with their investment.

Venture Capital: Venture capital firms invest in startups with high-growth potential. They provide substantial funding and often take an active role in shaping the company’s direction.

Crowdfunding: Platforms like Kickstarter and Indiegogo allow you to raise funds from a large number of individuals who believe in your product or business idea. This can provide both capital and market validation.

Small Business Administration (SBA) Loans: SBA loans are government-backed loans designed to support small businesses. They offer favorable terms and lower interest rates compared to traditional loans.

Grants: Explore federal, state, and private grants available for startups. These grants can provide non-dilutive funding for specific projects or research areas.

The choice of funding sources depends on your startup’s specific needs, growth potential, and industry dynamics.

What are the different types of funding to increase the revenue of a startup?

To increase revenue for your startup, you can consider the following types of startup funding:

Working Capital Loans: These loans provide short-term funding to cover operational expenses, bridge cash flow gaps, or invest in inventory to meet customer demand.

Revenue-Based Financing: This funding option involves raising capital in exchange for a percentage of future revenue. It can be particularly useful for startups with a proven revenue model.

Merchant Cash Advances: If your startup generates revenue through credit card transactions, you can receive upfront funding based on your future card sales.

Invoice Financing: Also known as accounts receivable financing, this option allows you to receive immediate funding by selling your outstanding invoices to a third-party at a discount.

Equity Financing: Selling equity in your startup to investors can provide capital to fuel revenue growth initiatives, such as expanding marketing efforts, hiring sales teams, or developing new product lines.

Strategic Partnerships: Collaborating with established companies can provide access to their resources, customer base, and distribution channels, which can contribute to revenue growth.

Each funding option has its own terms, eligibility requirements, and implications for your startup’s ownership and control.

What are the basic funding requirements for a startup?

The specific funding requirements for a startup can vary depending on the type of funding and the investors involved. However, some common requirements include:

Business Plan: A well-structured business plan that outlines your startup’s vision, market opportunity, competitive advantage, and growth strategy is often required when seeking external types of funding for startups.

Financial Projections: Investors typically expect startups to provide financial projections that demonstrate the potential return on investment. These projections should be based on thorough market research and realistic assumptions.

Proof of Concept or Traction: Investors often want to see evidence that your startup’s product or service has market demand and can generate revenue. This can include customer testimonials, pilot programs, or early sales data.

Team and Expertise: Investors assess the capabilities and experience of your founding team to determine their confidence in your ability to execute the business plan successfully.

Legal and Compliance Requirements: Depending on the source of funding, there may be legal and compliance requirements, such as incorporation, intellectual property protection, and regulatory compliance.

Due Diligence Materials: Investors may request additional documentation during their due diligence process, including financial statements, legal contracts, and market analysis reports.

It’s important to research and understand the specific requirements of each funding source and tailor your application materials accordingly.

When a startup looks for funding, how long should the funding last?

When considering different types of funding for startups, founders should consider how long the funding will last. This depends on various factors, including the stage of your business, growth projections, and the nature of your industry. However, it’s generally advisable to secure enough funding to cover your expenses for at least 12 to 18 months.

Startups often experience longer lead times in generating revenue or achieving profitability, so having a runway of at least one year allows you to focus on executing your business plan without constantly worrying about running out of funds.

Keep in mind that the funding duration may vary based on the specific requirements and milestones of your startup. It’s important to carefully plan your financial needs and regularly reassess your funding requirements as your business evolves.

Can I use my retirement savings as leverage or an asset for startup funds?

Using retirement savings as leverage or an asset for startup funds is possible through specific programs such as the ROBS (Rollovers as Business Startups) strategy. ROBS allows you to use funds from your 401(k) or IRA without incurring early withdrawal penalties or taxes.

However, it’s important to note that using retirement savings for funding a startup carries risks and should be approached cautiously. Some considerations include:

Consultation with Professionals: Seek advice from tax professionals, financial advisors, and legal experts who specialize in retirement accounts and small business financing to understand the potential implications and risks involved.

Risk and Diversification: Investing a significant portion of your retirement savings in a single business venture can be risky. It’s important to assess the potential impact on your long-term financial security and consider diversification strategies.

Entrepreneurial Experience: Starting and running a business requires specific skills and experience. Evaluate your own capabilities and consider whether you have the necessary expertise to successfully manage a startup.

Potential Loss: Entrepreneurship inherently carries a degree of risk, and there is a chance of losing the funds invested in your startup. Consider the impact of such a loss on your financial goals and retirement plans.

It’s crucial to weigh the potential benefits against the risks involved and seek professional guidance before making any decisions regarding your retirement savings.

Unleash Your Growth Potential with Funding

In this comprehensive guide, we explored various types of startup funding, including crowdfunding, startup loans, grants, venture capital, and angel investment. We discussed their eligibility requirements, terms, and pros and cons. From the flexibility of crowdfunding to the expertise brought by angel investors and venture capitalists, each funding avenue presents unique opportunities for startups.

To effectively secure different types of funding for startups, it’s essential to have a solid business plan, build a strong credit history, seek advice from experienced professionals, and tailor your approach to match the specific requirements of each funding source. 

Are you ready to secure the funding your startup needs to thrive? See if you qualify to join Founders Network to connect with experienced entrepreneurs, access funding-related resources, and accelerate your path to growth and success. Join thecommunity and gain access to a vibrant network of entrepreneurs who have navigated the funding landscape successfully. 

Remember, securing funding is just one step towards achieving your startup’s goals. Stay focused, adapt to market dynamics, and continue learning and growing. With the right funding and support, your startup can reach new heights of success.

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How to Create a Startup Funding Proposal: 8 Samples and Templates to Guide You

Being a founder is difficult. Managing the day-to-day as a founder while trying to secure capital for your business can almost feel impossible. Thankfully, there are different tools and techniques that founders can use to systemize their fundraise to focus on what truly matters, building their business.

One of those tools is a startup funding proposal. In this guide, we’ll break down what a startup funding proposal is and how you can leverage it to build momentum in your fundraise.

What Is a Startup Funding Proposal?

A startup funding proposal is a document that helps startup founders share an overview of their business and make the case for why they should receive funding. A startup funding proposal can be boiled down to help founders layout 3 things:

• What — what does your startup do
• How — how does your startup or product help customers accomplish what they are seeking
• Why — why does your startup need funding and why should an investor fund your business

Related Resource: How to Write a Business Plan For Your Startup

Types of Startup Funding Proposals

Like any business document, there are many ways to approach a startup funding proposal. Ultimately it will come down to pulling the pieces and tactics that work best for your business. Investors are seeing hundreds, if not thousands, of deals a month so it is important to have your assets buttoned up to move quickly and build conviction during a raise. Check out a couple of popular types of funding proposals below:

Traditional Startup Funding Proposal

The most traditional or “standard” standard funding proposal is generally a written and visual document that is created using word processing software and/or design tools.

A traditional proposal is great because it allows you to share context with every aspect of your business. For example, if you include a chart of growth you’ll be able to explicitly write out why that was and what your plan is for future growth.

This document is generally designed to fit your brand and will hit on the key components of your business is structured and predictable way. We hit on what to include in your proposal below.

Startup Funding Proposal Pitch or Presentation

The most common approach we see to a fundraise or proposal is the pitch deck. Pitch decks take the same components as any proposal and fit them into a visual pitch deck that can be easily navigated and understood by a potential investor.

Pitch decks are not required by investors by are generally expected and are a great tool that can help you efficiently close your round. To learn more about building your pitch deck, check out a few of our key resources below:

• Tips for Creating an Investor Pitch Deck
• 18 Pitch Deck Examples for Any Startup
• Our Teaser Pitch Deck Template

1-on-1 Proposals (Elevator Pitch)

A 1 on 1 proposal or an elevator pitch is the quickest version of any proposal. Every founder should have an elevator pitch in their back pocket and is a complementary tool to any of the other funding proposals mentioned here.

As the team at VestBee puts it, “Elevator pitch” or “elevator speech” is a laconic but compelling introduction that can be communicated in the amount of time it takes someone to ride an elevator, usually around 30 seconds. It can serve you for fundraising purposes, personal introduction, or landing a prospective client.”

Email Proposal

Another common way to share a startup funding proposal via email. While the content might be similar to what is seen in a “traditional” funding proposal this allows you to hit investors where they spend their time – their inbox.

The format will follow a traditional proposal with less emphasis on visual aspects and more emphasis on the written content. Check out an example from our Update Template Library below:

Related Resource: How to Write the Perfect Investment Memo

Investor Relationship Hub

Lastly, there is an investor relationship hub or data room that can be used to share your proposal with potential investors. A hub is a great place to curate multiple documents or assets that will be needed during your fundraise. For example, you could share your funding proposal and your financials if they are requested by a potential investor.

Related Resource: What Should be in an Investor Data Room?

What to Include in Your Startup Funding Proposal

How you share your funding proposal might differ but ultimately the components are generally closely related from one proposal to the next. However, be sure that you are building this for your business. There is no prescriptive template that will work for every business.

Project Summary

First things first, you’ll want to start with a summary of your project or your business. This can be a high-level overview of what your proposal encompasses and will give an investor the context they need for the rest of the proposal. A couple of ideas that are worth hitting on:

• What your company does and how it’s different from existing solutions to pressing problems.
• Existing market gaps and how your product covers them.
• The importance of your product in your industry and how it improves the industry.
• Existing resources and manpower, investment requirements, and potential limitations.

Current Performance and Financial Report

Of course, investors want to see how your business has been performing. The data and metrics around your business are generally how an investor builds conviction and further interest in your business. We suggest using your best judgment when it comes to the level of metrics or financials that you’d like to share. A couple examples of what you might share:

• Current assets and liabilities
• MVP presentation for companies still in the ideation stage
• Appendix with financial reports

Related Resource: ​​ Building A Startup Financial Model That Works

Existing Investors and Partners

Inevitably investors will want to know who else you have raised capital from and partnered with in the past. Include a brief description of the different investors you have on your cap table and be ready to field additional questions if they have any.

Pro tip: The first place an investor will go to when performing due diligence is your current investors. Make sure you have a strong relationship and good communication with your current investors.

Market Study and Sales Goals

Investors will also care about your customer acquisition efforts and want to make sure you can repeatably find and close new customers. A couple of things that might be important to include in this section:

• Product pricing and information
• Revenue targets and goals
• Customer acquisition model and efforts
• Sales and marketing related KPIs
• Stories or testimonials from happy customers

Current Valuation, Investment Requirements, and Expected Returns

This is an opportunity to lay out your cap table and explain your current valuation, investment requirements, and what future valuations could look like. As always, we suggest using your best judgment when it comes to what level of detail you’d like to share about your cap table.

Potential Pitfalls and Solutions

There is an inherent risk when investing in any startup. It is important to make sure potential investors are aware of this. Layout the common pitfalls your startup might face and stop you from achieving your goals. Next, lay out the solutions to these problems and how you plan to tackle them if/when they arise.

8 Startup Funding Proposal Samples and Templates

Below are 8 proposal templates to help you kick off your next fundraise. Note that some of these are technically investor updates and not designed for first-time fundraising. Keep in mind that a startup funding proposal could also be utilized for additional funding after the first round of funding.

1. An Investment Summary Template by Underscore VC

Underscore VC is a seed-stage venture fund based out of Boston. As the team at Underscore writes :

“As part of this, we strongly recommend you write out a pitch narrative before you start to build a pitch deck. “Writing the prose forces you to fill in the gaps that can remain if you just put bullets on a slide,” says Lily Lyman, Underscore VC Partner. “It becomes less about how you present, and more about what you present.”

This exercise can help you synthesize your thoughts, smooth transitions, and craft a logical, compelling story. It also helps you include all necessary information and think through your answers to tough questions.

Check out the template here .

2. The Visible “Standard” Investor Update Template

Our Standard investor update template is great for communicating with existing investors. If you are regularly sending Updates to their investors they should know when you are beginning to raise capital again and can almost be treated as an investment proposal.

Check out the template for our standard investor update template here .

3. Sharing a Fundraising Pitch via Video

Videos are a great way to give the right context to the right investors in a concise and quick way. Video is a great supporting tool for any other information or documents you might be sending over. For example, you can include a few charts or metrics and some company information and use the video to further explain the data and growth plans. Check out the template here .

4. Financial Funding Proposal

The team at Revv put together a plug-and-play financial funding proposal. As they wrote, “A funding proposal must provide details of your company’s financials to obtain the right amount of funding. Check out our funding proposal template personalized for your business.” Check out the template here .

5. Investor Proposal Template for SaaS Companies

The team at Revv put together a template to help founders grab the attention of investors. As they wrote, “With so many Investing Agencies, this Investor proposal will surely leave an impact on your company in the long run.” Check out the template here .

6. Startup Funding Proposal Sample

Template.net has created a downloadable funding proposal template that can be edited using any tool. As they wrote, “Get your business idea off the ground by winning investors for your business through this Startup Investment Proposal. Fascinate investors with how you are going to get your business into the spotlight and explain in vivid detail your goals or target for the business.” Check out the template here .

7. Simple Proposal Template

Best Templates has created a generic proposal template that can be molded to fit most use cases. As they wrote, “Use this Simple Proposal Template for any of your proposal needs. This 14-page proposal template is easily editable and fully customizable using any chosen application or program that supports MS Word or Pages file formats.”

8. Sample Investment Proposal for Morgan Stanley

Another example is from the team at Morgan Stanley. The template is commonly used by their team and can be applied to most proposal use cases.

Connect With More Investors and Tell Your Story With Visible

Being able to tie everything together and build a strategy for your fundraise will be an integral part of your fundraising success. Check out how Visible can help you every step of the way below:

Visible Connect — Finding the right investors for your business can be tricky. Using Visible Connect, filter investors by different categories (like stage, check size, geography, focus, and more) to find the right investors for your business. Give it a try here .

Pitch Deck Sharing — Once you’ve built out your target list of investors, you can start sharing your pitch deck with them directly from Visible. You can customize your sharing settings (like email gated, password gated, etc.) and even add your own domain. Give it a try here .

Fundraising CRM — Our Fundraising CRM brings all of your data together. Set up tailored stages , custom fields , take notes, and track activity for different investors to help you build momentum in your raise. We’ll show how each individual investor is engaging with your Updates, Decks, and Dashboards. Give it a try here .

Sources of Funding

Different ways to obtain financing

What are Sources of Funding?

Companies always seek sources of funding to grow their business. Funding, also called financing, represents an act of contributing resources to finance a program, project, or need. Funding can be initiated for either short-term or long-term purposes. The different sources of funding include:

• Retained earnings
• Debt capital
• Equity capital

Summary 

• The main sources of funding are retained earnings, debt capital, and equity capital.
• Companies use retained earnings from business operations to expand or distribute dividends to their shareholders.
• Businesses raise funds by borrowing debt privately from a bank or by going public (issuing debt securities).
• Companies obtain equity funding by exchanging ownership rights for cash coming from equity investors.

Retained Earnings

Businesses aim to maximize profits by selling a product or rendering service for a price higher than what it costs them to produce the goods. It is the most primitive source of funding for any company.

After generating profits, a company decides what to do with the earned capital and how to allocate it efficiently. The retained earnings can be distributed to shareholders as dividends , or the company can reduce the number of shares outstanding by initiating a stock repurchase campaign.

Alternatively, the company can invest the money into a new project, say, building a new factory, or partnering with other companies to create a joint venture.

Debt Capital

Companies obtain debt financing privately through bank loans. They can also source new funds by issuing debt to the public.

In debt financing, the issuer (borrower) issues debt securities, such as corporate bonds or promissory notes. Debt issues also include debentures , leases, and mortgages.

Companies that initiate debt issues are borrowers because they exchange securities for cash needed to perform certain activities. The companies will be then repaying the debt (principal and interest) according to the specified debt repayment schedule and contracts underlying the issued debt securities.

The drawback of borrowing money through debt is that borrowers need to make interest payments, as well as principal repayments, on time. Failure to do so may lead the borrower to default or bankruptcy.

Equity Capital

Companies can raise funds from the public in exchange for a proportionate ownership stake in the company in the form of shares issued to investors who become shareholders after purchasing the shares.

Alternatively, private equity financing can be an option, provided there are entities or individuals in the company’s or directors’ network ready to invest in a project or wherever the money is needed for.

Compared to debt capital funding, equity funding does not require making interest payments to a borrower.

However, one disadvantage of equity capital funding is sharing profits among all shareholders in the long term. More importantly, shareholders dilute a company’s ownership control as long as it sells more shares.

Other Funding Sources

Funding sources also include private equity, venture capital, donations, grants, and subsidies that do not have a direct requirement for return on investment (ROI), except for private equity and venture capital . They are also called “crowdfunding” or “soft funding.”

Crowdfunding represents a process of raising funds to fulfill a certain project or undertake a venture by obtaining small amounts of money from a large number of individuals. The crowdfunding process usually takes place online .

Related Readings

Thank you for reading CFI’s guide to the Different Funding Sources. In order to help you become a world-class financial analyst and advance your career to your fullest potential, these additional resources will be very helpful:

• Free Fundamentals of Credit Course
• Cash Flow from Financing Activities
• Debt vs Equity Financing
• Revenue-Based Financing
• Top Banks in the USA
• See all accounting resources

Accounting Crash Courses

Learn accounting fundamentals and how to read financial statements with CFI’s  online accounting classes . These courses will give you the confidence to perform world-class financial analyst work. Start now!

Boost your confidence and master accounting skills effortlessly with CFI’s expert-led courses! Choose CFI for unparalleled industry expertise and hands-on learning that prepares you for real-world success.

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Plan Projections

ideas to numbers .. simple financial projections

Home > Funding > Startup Funding Requirements

Startup Funding Requirements

The startup funding requirements of most new businesses follow a similar pattern.

The startup funding requirements can be highlighted by plotting the cash flow from the cash flow statement on a cumulative basis over time. A typical graph is shown below.

The shape of the startup funding requirements graph is often referred as the j curve or death valley curve, as to survive its first few years, the business needs to find sufficient financing to cover the period where the cumulative cash flow remains negative.

The business normally starts off with cash being injected by the owner, in this case 50,000 shown at year 0. Over the next few years, with minimal revenue coming in, net cash flows out of the business until the startup funding requirements reaches a peak, shown in the example as 175,000 at year 3.

Eventually, net cash starts to flow into the business as the initial high expenditure slows down and revenue increases, until the cumulative cash flow starts to go positive, in this case towards the end of year three.

Startup Funding Requirements Profile

Using the cumulative cash flow graph, the startup funding requirements can be split into manageable tranches (shown in the example as the highlight boxes, funding 1, funding 2, and funding 3). In this particular case instead of 175,000 for 4.5 years, the business could operate with the following funding profile.

• Funding 1: 75,000 for 4.5 years
• Funding 2: 50,000 for 3 years
• Funding 3: 50,000 for 1.75 years

The effect of organizing the funding in tranches results in a significant reduction in the interest paid on the facilities. In the above example, ignoring the effect of compounding which would make matters worse, the simple interest on 175,000 for 4.5 years at say 6% is 47,250. However, using the three tranches of funding, the interest is reduced to 34,500, a saving of 12,750.

The cumulative cash flow graph is a useful tool for identifying the pattern and peak funding needed by a startup business. Using the graph, the startup funding requirements can split into funding strips to ensure the business has the correct level of finance available for the minimum period of time.

About the Author

Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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“How Do You Calculate Funding Requirements?” 3 Easy Steps

What are funding requirements in a business plan?

The Funding Requirements section of your business plan is where you outline:

• How much money your startup is going to need to begin operations and reach self-sufficiency
• Whether you are seeking debt financing, equity financing, or both
• Any other details regarding how the money will be used, how much will be returned to the financier(s), and when it will be returned

Unless you have a really big chunk of money saved up, you’re probably going to have to do what most other startups do – ask for money. Ultimately, the goal is, of course, to make the business self-sufficient. But, early on, if you want to scale up quickly, you’re probably going to have to leverage someone else’s money.

What would you want to know if you were giving someone money to start a business? Would you want to know how they’re going to use it? How they’re going to preserve it? How about how they’re going to build upon it?

Maybe you’re a lone wolf? You want to keep this operation as lean as possible. Particularly when it comes to people.

I can appreciate that!

Nevertheless, if you’re going to be funding this thing on your own, you still want to hold yourself accountable. You want a plan regarding where your money will be spent, and how you’re going to earn a return on it.

1) Capital, operating, and financial budgets

Starting a business from scratch is not so different from a decades-old business starting a new year. The required tasks are nearly the same.

Writing posts on, and making templates for, strategic planning topics is the foundation of this website. Capital, operating, and financial budgeting is critical to small business success.

The capital budget will specify any projects and/or large-scale assets you intend to buy. Plus, what kind of return you expect on that investment.

The operating budget is where you forecast your first one, three, or five years of operation. Your revenue, your cost of revenue, and your sales/administrative costs. An operating budget leads to the creation of a pro forma income statement.

Finally, your financial budget . This is your cash budget. It specifies when you think you’ll actually put money in your bank account from all those sales you’ll be making. It also specifies how you plan to stay solvent. This budget leads to the creation of a pro forma balance sheet and cash flow statement.

2) Determine funding need

All of the preceding budgets, particularly the financial (cash) budget, show where the money is going to be used. Once you compare the business’ cash needs to the cash you’re contributing, you’ll know how much is required from outside sources.

Budgeting will also show when and how the business is expected to make enough to support itself. Furthermore, other important milestones will be reflected. Milestones such as your first sale, your first $10,000 in revenue, your first $1 million in revenue(?), and so forth.

Can you see how these budgets will serve as a good measuring stick for your business’s launch and growth?

3) Funding details

Now that you know how much outside funding you’ll need to get off the ground, it’s time to really get into the nitty-gritty details.

Step one is to specify how much of the funding will be debt and how much will be equity. If you’re seeking equity investment, you’ll want to outline a proposal dictating what their investment will buy them. Also, how much power that equity investment will wield.

Another important point to clarify is the timeframe. For instance, things such as debt/balloon payments. If you’re really aggressive, there might come a point where you expect to cash out of the business and pay your equity holders

Whatever the case may be, you’re going to be clear about the status of the business at the end of the five-year forecast. Plans can change, of course, but you’ll want to include an exit strategy for those who are investing in you.

Finally, you should consider building on step one (budgeting) and clarify how the debt/equity funds will be used. Will it be for fixed assets, marketing, other operating expenses, or something else?

What are business funds?

Business funds are used by the business for their financial requirements. A business needs money to run. It is the oxygen that fuels its operations.

Starting a business is not cheap. To fund your new company, you’ll need some money upfront and this can be one of the first financial choices made by entrepreneurs when they start their own enterprise. But it’s also an important decision that could have lasting impacts on how your structure and run your business over time.

There are a variety of sources to turn to if you’re looking for small business funding. Capital may come in various forms like loans, grants, or crowdfunding.

Don’t Guess if Crowdfunding Can Help Your Small Biz – Know

Before you seek out funds, make sure to have a solid business plan and a clear outline of how the money will be used. Investors want assurance that their investments are being well managed so they can invest with confidence in the company’s future success!

This is what your entire business plan has been building up towards.

If you follow these steps for calculating funding requirements, don’t you think you’ll have an enormous amount of insight as you launch your startup?

This is the culmination of all the hard work you’ve put into your business plan thus far. Once completed, you’ll know how much money you’ll need, and what you’ll use it for.

Asking someone to invest in your business is like asking for a sale. Fortunately, if you’ve stuck with me this far you’re well prepared to write the funding requirement section of your business plan. I’m sure you’ll get what you need to be successful!

Funding options

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Unlock Your Business Potential with OneMoneyWay

Choosing the right funding option for every business stage.

Starting and growing a business takes more than just great ideas and effort; it also requires a good amount of money. Whether you’re just beginning with a new startup or looking to expand an existing business, getting the right funding is essential. Here are some of the best funding options available for businesses right now!

Important funding needs across business stages

Each stage of a business’s life, from the early days of a startup to periods of rapid growth and then expansion, has its own financial needs. These needs must be met to keep the business running and to take advantage of new opportunities.

Startup phase

When you’re just starting out, you need money to get your business off the ground. This includes funds for setting up your office or production space, developing your products, and getting the word out there. Think of this stage as setting up the building blocks for your business.

Growth phase

Once your business starts to pick up, you’ll need more money to help it grow. This might mean making more of your product, hiring more people, or boosting your marketing to reach more customers. It’s all about increasing your business’s size and handling more work smoothly.

Expansion phase

When it’s time to take your business even further, you’ll look at expanding. This could involve selling your products in new areas, adding new items to your lineup, or even buying out other businesses. Expansion needs careful investment because you’re building on what you’ve already achieved and reaching for more.

Different types of funding options available for businesses

Luckily, there are many ways to get funding for your business. You can choose from traditional options like bank loans and venture capital or go for newer methods like crowdfunding and fintech solutions. Knowing what’s available is the first step to getting the funds you need to support your business dreams.

Personal and informal funding

Friends and family.

When starting a business, getting funds from friends and family can be a vital step. This early-stage financing usually involves manageable amounts of money with flexible repayment terms. The key advantage is the personal trust and support behind the investment, rather than rigorous financial scrutiny.

Personal savings

Using personal savings to fund your business is an excellent way to keep complete control. Self-funding shows a high level of commitment to potential investors or lenders, but it also means the risk is all on you. If the business doesn’t succeed, it can significantly affect your personal financial health.

Traditional debt financing

Bank loans are a traditional source of funding for businesses that can show a good financial track record and a strong business plan. The main benefits include predictable repayment schedules and often generous terms. However, the main hurdle is the stringent qualification criteria, which can exclude newer or struggling businesses.

Credit unions

Credit unions offer a more community-focused alternative, potentially with better rates and more favorable terms than traditional banks. They’re particularly suited to small businesses that contribute to their local community, as they often have less rigid lending criteria.

Equity financing

Angel investors.

Angel investors are individuals with the wealth and desire to invest in promising businesses, typically in exchange for equity. They often seek businesses with the potential for substantial growth and are usually willing to contribute their expertise and networks.

Venture capitalists

Venture capital firms are groups that invest significant sums in businesses with high-growth potential, taking equity in return. They tend to play an active role in the business, often helping to steer company strategy and growth in exchange for substantial returns on their investments.

Equity crowdfunding

Platforms like Kickstarter and GoFundMe have revolutionized funding by allowing businesses to raise money from a wide audience. This method involves small contributions from a large number of people, making it a great way to gain both capital and exposure.

Hybrid financing

Mezzanine financing.

Mezzanine financing blends debt and equity elements, offering the flexibility of both. It’s often treated as equity on a company’s balance sheet, enhancing financial stability. However, it comes with higher interest rates compared to traditional loans, and there’s a risk of losing ownership if the business can’t meet repayment terms.

Internal financing

Retained earnings.

One of the simplest forms of funding, retained earnings involve reinvesting profits back into the business. This approach avoids debt and allows management to retain full operational flexibility. However, it might lead to dissatisfaction among shareholders expecting dividends.

Sale of assets

Selling non-essential assets is another internal financing strategy that can free up capital without incurring debt. This method is particularly useful in restructuring phases or when quick liquidity is needed.

Alternative funding options

Crowdsourcing.

Crowdsourcing leverages social networks and large audiences to gather funds. Successful crowdsourcing requires an engaging business proposal and broad appeal to capture the interest of potential backers.

Peer-to-peer lending

This method involves borrowing from individuals through online platforms, presenting an alternative to traditional bank loans. It often provides more accessible terms and conditions, making it a viable option for many startups and small businesses.

Government and institutional support

Small business administration (sba) loans.

SBA loans are designed to support small businesses that might not qualify for traditional bank loans. These programs offer various benefits, including lower interest rates and longer repayment terms. Eligibility and the application process are straightforward but require thorough documentation.

Grants and subsidies

Governments and institutions often provide grants and subsidies for businesses in specific industries or for specific purposes, such as technology innovation or environmental improvements.

How to get the right funding for your business: A step-by-step guide

Step 1: define your need.

First, figure out exactly what you need money for and how much you need. Different goals might require different types of funding. Whether it’s for starting up, scaling up, or covering operational costs, knowing this helps target the right sources.

Step 2: Develop a solid business plan

Your business plan should include your financial plans, marketing strategies, and how your business works. A good plan not only helps you get funding but also helps you understand your business better. It acts as a roadmap, showing potential lenders or investors how their contributions will be used and the potential for returns.

Step 3: Evaluate your funding options

Look into all the ways you can get money, from loans and investments to grants and crowdfunding. Each option has its own benefits and drawbacks. Consider factors like the amount of money you can get, the costs involved, and how quickly you need the funds.

Step 4: Prepare your pitch

If you’re going after investors, you’ll need a strong pitch. This should explain what makes your business special, the opportunity in the market, and how investors can make money from their investment. Your pitch should be compelling and concise, ideally highlighting what sets your business apart from competitors.

Step 5: Check eligibility requirements

For loans and grants, make sure you fit the criteria before you apply to save time and effort. Each funding source has specific requirements, such as financial health, business age, or the owner’s credit score, which you must meet to be considered.

Step 6: Apply for funding

Send in your applications or reach out to potential investors. Make sure your approach is right for the type of funding and the person or organization you’re asking. Tailor your applications or pitches to reflect the interests and goals of the funders.

Step 7: Negotiate terms

If you get an offer, talk about the terms to make sure they work for you but are still fair. Think about things like how long you have to pay back the money, the interest rate, and how much of your business they want in return. Good negotiation can result in better terms that will benefit your business in the long run.

Step 8: Manage funds wisely

Once you have the money, use it carefully to meet the goals in your business plan. Managing your money well will help you when you need more funding later. Effective management also builds your reputation with investors and lenders as a reliable, successful business manager.

Consider these things before getting business funding

Getting funding for your business has some risks and things to think about:

Debt vs. equity

Borrowing money means you’ll have to pay it back with interest, which can be tough on your budget. Taking investment for a share of your business doesn’t need regular repayments, but it means giving up some control. Consider which is more critical for your current situation: preserving cash flow or maintaining control over your business.

Interest rates and fees

High interest and fees can make borrowing more expensive and cut into your profits. It’s important to understand all the costs involved in any financing agreement to avoid surprises later.

Repayment terms

Tough repayment conditions can strain your finances or make it hard to manage your money well. Ensure that the terms do not compromise your ability to operate your business effectively.

Impact on credit

Too much debt or missing payments can hurt your business’s credit score, making it harder and pricier to borrow money later. Always consider the long-term impact of any debt you take on your business’s financial health.

Legal and tax implications

Different ways of funding can have different legal and tax effects that you need to understand and plan for. Consulting with a financial advisor or an accountant can help you navigate these complexities.

Takeaway note

Choosing the right funding method is critical for business success. It’s essential to evaluate your business needs and long-term goals carefully when selecting financing options. Exploring a variety of funding sources can provide the financial support needed to grow and sustain your business.

Simplify your business finances today

Set up a low-cost business account in just 5 minutes with OneMoneyWay so you can focus on growth for your business.

Can I use a business credit card for funding?

Yes, business credit cards are a flexible way to manage cash flow and can cover short-term needs. Just watch out for high interest rates and fees.

Is it possible to get funding without giving up equity or taking a loan?

Yes, business grants are a great option. They don’t require repayment or giving up equity, but they can be competitive and have specific requirements.

How do personal credit scores affect business funding?

Your personal credit score can significantly impact your ability to secure business loans, especially for new businesses without a financial history.

Can crowd-investing be an option for small businesses?

Absolutely! Crowd-investing allows individuals to invest small amounts in your business in exchange for equity. It’s a good way to raise funds while engaging your community.

What should I do if my business is denied a loan?

Don’t be discouraged. Review the reasons for the denial, improve your business plan or credit standing, and consider alternative funding options or reapplying later.

Content Writer at OneMoneyWay

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Startup Funding

The process of acquiring capital executed by entrepreneurs to finance new business operations.

• What Is Startup Funding?
• Startups and Their Investors
• Startup Funding First Stage: Pre-Seed Funding
• Seed Funding
• Series A Funding
• Series B Funding
• Series C Funding
• Series D Funding and Beyond
• Mezzanine Financing and Bridge Loans

What is Startup Funding?

Startup funding is the process of acquiring capital executed by entrepreneurs to finance new business operations. The funding is needed to launch, grow, and scale business operations.

Startup funding can be complex as there are many stages. However, it's important to note that many startups require external financing early on to grow, and understanding the funding stages is crucial for both  venture capitalists  and  entrepreneurs . 

This article will focus mostly on equity funding sources, from startups to IPOs . 

Most companies in their early stages require some kind of external financing. For example, business financing can either come from debt or equity. However, startup financing is a little different and typically comes from equity.

When a startup raises equity capital, that means it is exchanging shares (ownership) for cash that will be used to fund the expansion of the business. The startup's stage and performance will affect the stage of funding the company is at and how effective its fundraising is.

Why is there a focus on equity financing? That is because it's difficult for startups (especially with low or negative EBIT) to get loans or take on significant debt. 

Since their historic finances indicate there is insufficient pre-interest income to cover interest payments that would arise from a loan. There is the additional risk of not being repaid the principal.

There is, however, an exception for mezzanine financing and bridge loans which we will discuss in the article. 

Mezzanine finance is an option for businesses that need to provide warranties with their debt to attract lenders, while bridge loans also have special conditions that make them great for new ventures.

If you are interested in the venture capital space and want to learn more, don't forget to check out our venture capital course!

Key Takeaways

• Startup funding is essential capital for entrepreneurs and new businesses to launch, grow, and scale their operations. It can come from various sources and covers initial expenses, product development, and market expansion.
• There are several stages of startup funding, including seed funding, early-stage funding (Series A, B, and C), and late-stage funding. Each stage aligns with the startup's development phase and specific financial needs.
• Common sources of startup funding include bootstrapping (self-funding), angel investors, venture capitalists, crowdfunding, and government grants. Each source has its advantages, requirements, and potential drawbacks.
• Securing startup funding is challenging due to strong competition and strict investor criteria. Founders must be prepared for thorough due diligence, potential dilution of ownership, and pressure to meet growth expectations set by investors.

Startups and their investors

Startups are businesses in their initial stages of operation or occasionally pre-operation. Their costs are usually quite high relative to their revenue, if there is revenue. Because of these factors, they often seek aid in financing their businesses.

Startups can, however, grow very quickly with the right mix of market conditions, management, and financing, which is why they are of interest to certain investors.

Who would be willing to invest in such companies? After all, many of these businesses are pre-profit, and since shares are purchased privately, your equity stake is illiquid.

Due to the high growth potential of many startups, sophisticated investors (groups and individuals) might consider this asset class lucrative. This is where venture capitalists, angel investors, and early-stage PE firms come in.

Each investor group typically partakes in a different stage(s) of the funding process. The stages of funding consist of 

• Pre-seed funding 

Seed funding

• Series A, B, C
• Series D and potentially beyond
• Mezzanine financing

Startup Funding First Stage: Pre-seed funding

Pre-seed funding (a.k.a. bootstrapping) is the earliest stage of funding for a business. This also occurs at the earliest stages of the business itself.

Although technically considered equity funding, this round of funding may not come with the formal exchange of equity for capital. For this reason, it may not be included when discussing future completed funding rounds.

Sometimes the capital is given as a grant or loan, while other times, it may just be a gesture of goodwill, hoping but not obliging the entrepreneur to pay them back in the future. 

It is possible to exchange equity at this point, but uncommon. Agreements can be informal as they are between friends, family, and entrepreneurs.

Businesses at this stage may range between a $10,000 and $100,000 valuation . Funding is on an as-needed basis.

Companies doing pre-seed funding are just starting their operations. Startups are often doing various activities at this stage, including:

• Developing a  business plan
• Market feasibility  study
• Technical feasibility  study
• Financial feasibility  analysis

This stage of funding often does not include institutional capital. Instead, bootstrapping usually requires most of the funds to come from the owners. External funding can also come from friends, family, and supporters of the entrepreneur(s).

Seed funding is the first official round of funding. As a result, the outcomes of seed funding may vary. While some businesses may only need this round to have ample cash to run their business, others may use this as the first of many equity funding rounds.

Companies seeking seed funding can be valued between $100,000 to $6 million. These businesses are often still in their earliest stages and can be pre-operation. 

The Business

As in pre-seed funding, this round aims to aid in the various feasibility studies needed to start a business. It may also help create an MVP ( minimum viable product ) or proof of concept.

At this stage of the business, startups are:

• About to launch their product
• Recruiting key employees
• Developing a product to market
• Seeking funding to keep operations going till revenue starts

This round of funding may seek to raise between $10,000 and $2 million. As the funding requirements can vary widely, the source of the funds may also vary.

Who are the Investors?

As with many rounds, this will depend on a few factors. Geography, local demographics , size of the funding goal, minimum investment, and the type of business all play a part in which kind of investors may become attracted or allowed to invest in the business.

In some cases, for more simple types of equity-raising rounds and businesses, with smaller needs, many of the funders might overlap with those in pre-seed funding. Friends, family, supporters, and the owners will use their funds to keep operations going. 

The startup may need to seek accredited investors in more complex financing rounds, with more significant minimum investments, etc. With a strong business plan and market research, startups might consider contacting angel investors or potentially micro VCs.

Typically at this stage, and depending on the business needs, angel investors are the most likely individuals and groups to be interested, as they have larger risk appetites. However, in exchange for their valued capital, they will require a formal equity stake in the business.

Series A funding

Series A funding for many firms will be the first round of institutional financing. Firms in this stage must have moved beyond just an idea and should now have a solid plan to execute and monetize the business.

Since less than 10% of companies receiving seed funding can secure their Series A financing goals, this is a crucial step in further growing the business. 

For the greatest chance of success, statistics indicate that joining an accelerator program is the right move at this stage. Accelerators make up about 10% of series A financing rounds, but they can be exclusive. All the more reason to ensure a great business plan is in place.

As mentioned, investors are now looking for more than just an idea. In the pre-seed funding round, the financing may have been used to create an MVP. At this stage, the startup should be able to demonstrate its MVP, or if not, it should be perfecting it.

As of late, business valuations are starting to be positively skewed . This is due to the increased valuations caused by a frenzy of VC deals in recent years. As a result, some companies are achieving unicorn status in their series A.

At this stage, the business needs to start establishing stronger KPIs .

• Revenue figures
• Client base size
• Client base satisfaction rates

Specifically, entrepreneurs need to consider how they will make money and grow the business.

In terms of making money, entrepreneurs should consider how they will start to monetize their product or service at this stage. Furthermore, they need to establish a long-term business plan which outlines how the business will maintain profitability.

In terms of scaling the business, there are two key aspects or strategies to consider:

• Should the business focus on its current market, and how can it capture more of this market?
• Should the business consider expanding into new markets? Which markets can it expand into, and how can it expand?

At this stage of funding, the business should focus on the following:

• Revising the business model
• Creating and retaining a team for the venture
• Raise enough to cover financial losses caused by the startup phase
• Further product/service development
• Plan or initiation of scaling the venture
• Operation optimization

These firms raise between $2-15 million to meet their needs, but this has also started to skew recently. Increased valuations and "mega" financing rounds are changing the VC landscape, but the range we mention is most likely what would be observed in this financing round. 

However, the average firm as of mid-2022 is valued at $23 million, and the typical valuation range is between $10-30 million.

The investors of series A funding rounds are looking for ideas that have an execution plan or have even begun executing their business plan. If there is proof that the concept can be monetized, the venture becomes an even stronger candidate for funding.

Some angel investors still consider investing at this stage, but series A funding is largely dominated by well-known venture capital funds such as:

• Tiger Global
• Sequoia Capital
• IDG Capital
• Index Ventures
• GV (formerly Google Ventures)

At this stage, it is very helpful to gain a large firm's funding initially. Although not necessary, many entrepreneurs find it easier to raise capital when mentioning a larger VC fund has already invested in their series A. This firm is called the "anchor" firm.

As mentioned, series A funding can be quite difficult, as investors are not looking at a company with a long track record yet. Firms having trouble raising capital might consider equity crowdfunding from a company such as  Equivesto .

Crowdfunding options open the table to a larger variety of investors, including those who are not accredited, investors. These  exempt market  dealers allow regular investors to participate in funding rounds as early as series A funding.

Series B funding

Series B funding is similar to Series A in many respects. Many of the same tips also apply to entrepreneurs. However, there are still a few key differences.

The business will be at a different stage than in its A round. In this equity funding round, the venture should be past the development stage and looking at ways to grow the business. 

The business needs to cover the costs of the following:

• Business development
• Increasing sales volumes
• Improve, develop, and implement marketing plans
• Improving technology
• Acquiring more new talent

These businesses are typically valued at $30 - $60 million. The median valuation sits at about $40 million.

This round of funding seeks to raise about $30 million, but the mean and media are fairly far apart for similar reasons as series A. The median amount raised as of late is $26 million, and the mean is around $33 million.

Who are the investors?

The investors in this round of funding are quite similar to those in the A round, although you will rarely encounter angel investors at this stage. Typically the process for acquiring investors is also quite similar.

In this stage, you will come across mostly VC firms, and one anchor firm will often be used to help further the fundraising goal. There will, however, be the addition of some late-stage VCs at this point.

Late-stage VC funds are looking to analyze what has happened to the business between series A and now. In addition, they want to see what the venture has accomplished, which can help analyze the business prospects.

Series C funding

This is the final funding stage for many firms before other options, such as  IPO , are considered. The reason is that this funding stage can be anywhere from tens to hundreds of millions, and the businesses are somewhat established now.

As mentioned, businesses at this stage are somewhat established in their market. This often follows a period of great success for the venture, and there is now an established track record for the KPIs.

Businesses are seeking funding for the following reasons:

• Expand the line of product and/or service offerings
• Expand into new markets
• Funding may be used to acquire another firm

At this stage, the business is seeking funds to grow what is already a successful business. There are a few good uses of funds, including the above, but here's why they would take these actions.

There may be an opportunity for vertical or horizontal acquisition to improve market presence, pricing control, develop synergies, or increase revenue. For example, perhaps starting another venture in a new market via strategic alliance, joint venture , or M&A activity.

If there is a business that could develop major synergies with the venture, this could increase future valuation significantly. Or if there is a major competitor, then acquisition can be a great way to improve the firm's market share .

The point is that the business is earning revenue at this round. As a result, the firm is seeking a series C with the primary concern of pumping capital into the business to accelerate growth.

Most companies in this funding stage can be valued at up to $120 million, but the more established and successful the firm has been in the past can vastly change the upper limit of its valuation. As a result, the median valuation was around $68 million as of early 2022.

Funding at this stage can also depend on the success of the company. The mean and median funding as of early 2022 is about $59 million and $53 million, respectively.

This is where the interest opens up significantly regarding the variety of potential investors. 

Investors could include:

• Hedge funds
• Private equity firms
• Investment banks
• Other large secondary market investors

As the firm has now progressed into being a significant corporation at this stage and has seen a significant amount of success up until this stage, it warrants consideration by these larger firms. 

Since there is an established track record and some fundamentals to analyze, these firms are now more comfortable deploying their valuable capital into this corporation in exchange for an equity stake.

Series D funding and beyond

A venture would not often seek D or beyond in funding rounds. However, some corporations still consider and execute rounds D, E, and even F rounds of funding from time to time.

Potential reasons for this may include investment opportunities and not meeting full funding needs in round C.

Regarding investment opportunities, those with equity stakes will want to ensure the company receives the best valuation at IPO. If there is a good investment opportunity (i.e., an acquisition, investment in tech, etc.), then this may be a cause to do some late-stage raising of funds.

If those funds can accelerate the business's growth fast enough, it can help create a stronger track record before going public.

Conversely, a venture may not have received the funding it hoped for in the C round. For this reason, and partially the previous, the owners may seek to raise capital to strengthen the company before exiting.

This benefits the current shareholders by strengthening the business and satisfying the potential market demand for more business shares.

The main takeaway is that a company may continue with several rounds of funding after the C round, as needed, to strengthen the company.

Mezzanine financing and bridge loans

This is one of the latest stages of financing before an IPO. Mezzanine financing typically involves a combination of debt and equity, such as convertibles being offered to strengthen the company further.

An example of how this would function is if a company fails to make its interest payments (defaults) and is forced into bankruptcy, the debtholders will be able to take ownership of the company by converting the debt they hold into equity.

The debt comes with what is known as warrants, and this feature increases the value of the debt securities attached. Because of this feature and the increased security value, the company can seek more favorable terms on its rates and other terms of debt.

On the other hand, bridge loans are short-term loans used by the company to make short-term investments close to IPO. The loans and interest will be paid back with the proceeds of the IPO.

Funds are used for similar purposes as in the C round, improving market share, expanding into new markets, etc. 

At this stage, funding is most commonly sourced from PE firms, but some firms with relationships to the company might also provide mezzanine finance or bridge loans.

This is the final stage of funding for the corporation, where it goes from private to public. Then, finally, the IPO ( initial public offering ) is where shares are offered to the public for the first time on a public exchange. But there are a few keys here. 

With regards to the early funders, many will take this opportunity to exit the company. As it is outside the scope of many VC and PE firms to trade in public securities , the IPO is the perfect opportunity to harvest the capital gains from their investment. 

The corporation itself will have to be prepared for all the compliance requirements for its IPO. They will also have to prepare to be audited regularly and prepare financial records and pro forma statements for investors indefinitely.

There is also virtually no limit to seeking further funding at this stage. Although the IPO or unseasoned offering is a special time for the organization, outside of regulations and the board of directors, there is little in the way of issuing further equity in exchange for capital.

Many corporations at this stage are profitable and have some performance record, opening the door for retail investors, asset managers with either client or corporate portfolios, and portfolio managers to become involved in the company.

At this stage, controlling capital structure also becomes easier for some corporations to control as public markets are a great place to issue either additional debt or equity securities.

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Trump’s plans if he returns to the White House include deportation raids, tariffs and mass firings

President Joe Biden has a lot of unfinished business from his first term that he intends to continue if reelected. It’s a far different vision for the country than Donald Trump has outlined during his own campaign. (Nov. 12)

FILE - Former President Donald Trump speaks at the Republican Party of Florida Freedom Summit, Nov. 4, 2023, in Kissimmee, Fla.Trump is already laying a sweeping set of policy goals should he win a second term as president. Priorities on the Republican’s agenda include a mass deportation operation, a new Muslim ban and tariffs on all imported goods. (AP Photo/Phelan M. Ebenhack, File)

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FILE - President Donald Trump pumps his fist after speaking in the East Room of the White House, early Wednesday, Nov. 4, 2020, in Washington. Trump is already laying a sweeping set of policy goals should he win a second term as president. Priorities on the Republican’s agenda include a mass deportation operation, a new Muslim ban and tariffs on all imported goods. (AP Photo/Evan Vucci, File)

FILE - Republican presidential candidate, former President Donald Trump speaks during a campaign rally, July 29, 2023, in Erie, Pa. Trump is already laying a sweeping set of policy goals should he win a second term as president. Priorities on the Republican’s agenda include a mass deportation operation, a new Muslim ban and tariffs on all imported goods.. (AP Photo/Sue Ogrocki, File)

FILE - Former President Donald Trump speaks at the New Hampshire Federation of Republican Women Lilac Luncheon, June 27, 2023, in Concord, N.H. Trump is already laying a sweeping set of policy goals should he win a second term as president. Priorities on the Republican’s agenda include a mass deportation operation, a new Muslim ban and tariffs on all imported goods.. (AP Photo/Steven Senne, File)

FILE - Republican presidential candidate former President Donald Trump gestures after speaking Oct. 11, 2023, at Palm Beach County Convention Center in West Palm Beach, Fla. (AP Photo/Rebecca Blackwell, File)

Former President Donald Trump speaks at a campaign rally in Hialeah, Fla., Wednesday, Nov. 8, 2023. (AP Photo/Lynne Sladky)

NEW YORK (AP) — A mass deportation operation. A new Muslim ban. Tariffs on all imported goods and “freedom cities” built on federal land.

Much of the 2024 presidential campaign has been dominated by the myriad investigations into former President Donald Trump and the subsequent charges against him. But with less than a year until Election Day, Trump is dominating the race for the Republican nomination and has already laid out a sweeping set of policy goals should he win a second term.

His ideas, and even the issues he focuses on most, are wildly different from President Joe Biden’s proposals . If implemented, Trump’s plans would represent a dramatic government overhaul arguably more consequential than that of his first term. His presidency, especially the early days, was marked by chaos, infighting and a wave of hastily written executive orders that were quickly overturned by the courts.

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Some of his current ideas would probably end up in court or impeded by Congress. But Trump’s campaign and allied groups are assembling policy books with detailed plans.

A look at his agenda:

DISMANTLING THE ‘DEEP STATE’

Trump would try to strip tens of thousands of career employees of their civil service protections. That way, they could be fired as he seeks to “totally obliterate the deep state.”

He would try to accomplish that by reissuing a 2020 executive order known as “Schedule F.” That would allow him to reclassify masses of employees, with a particular focus, he has said, on “corrupt bureaucrats who have weaponized our justice system” and “corrupt actors in our national security and intelligence apparatus.” Given his anger at the FBI and federal prosecutors pursuing criminal cases against him, Trump probably would target people linked to those prosecutions for retribution.

Beyond the firings, he wants to crack down on government officials who leak to reporters. He also wants to require that federal employees pass a new civil service test.

THE U.S.-MEXICO BORDER

Trump has pledged to “immediately stop the invasion of our southern border” and end illegal immigration.

As part of that plan, he says he would immediately direct U.S. Immigration and Customs Enforcement to undertake the largest domestic deportation operation in American history. He would target people who are legally living in the United States but harbor “jihadist sympathies” and revoke the student visas of those who espouse anti-American and antisemitic views.

In a bid to secure the U.S.-Mexico border, Trump says he will move thousands of troops currently stationed overseas and shift federal agents, including those at the Drug Enforcement Administration and FBI, to immigration enforcement. He also wants to build more of the border wall.

Trump wants to reimpose his travel ban that originally targeted seven Muslim-majority countries and expand it to “keep radical Islamic terrorists out of the country.” In the wake of the Hamas attack on Israel, he has pledged to put in place “ideological screening” for immigrants. His aim: bar “dangerous lunatics, haters, bigots, and maniacs,” as well as those who “empathize with radical Islamic terrorists and extremists.”

To deter migrants, he has said he would end birthright citizenship, using an an executive order that would introduce a legally untested interpretation of the 14th Amendment. The order would prevent federal agencies from granting automatic citizenship to the children of people who are in the U.S. illegally. It would require that at least one parent be a U.S. citizen or lawful permanent resident for their children to be eligible for passports, Social Security numbers and other benefits.

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Trump says he will institute a system of tariffs of perhaps 10% on most foreign goods. Penalties would increase if trade partners manipulate their currencies or engage in other unfair trading practices.

He will urge that Congress pass a “Trump Reciprocal Trade Act,” giving the president authority to impose a reciprocal tariff on any country that imposes one on the U.S.

Much of the agenda focuses on China. Trump has proposed a four-year plan to phase out Chinese imports of essential goods, including electronics, steel and pharmaceuticals. He wants to ban Chinese companies from owning vital U.S. infrastructure in sectors such as energy, technology and agriculture, and says he will force Chinese owners to sell any holdings “that jeopardize America’s national security.”

FOREIGN POLICY

Trump claims that even before he is inaugurated, he will have settled the war between Russia and Ukraine. That includes, he says, ending the “endless flow of American treasure to Ukraine” and asking European allies to reimburse the U.S. for the cost of rebuilding stockpiles.

It is unclear whether he would insist that Russia withdraw from territory in Ukraine it seized in the war that it launched in February 2022.

Trump has said he will stand with Israel in its war with Hamas and support Israel’s efforts to “destroy” the militant group. He says he will continue to “fundamentally reevaluate” NATO’s purpose and mission.

TRANSGENDER RIGHTS

Trump says he will ask Congress to pass a bill establishing that “only two genders,” as determined at birth, are recognized by the United States.

As part of his crackdown on gender-affirming care, he will declare that hospitals and health care providers that offer transitional hormones or surgery no longer meet federal health and safety standards and will be blocked from receiving federal funds, including Medicaid and Medicare dollars.

He would push Congress to prohibit hormonal or surgical intervention for transgender minors in all 50 states.

Doctors typically guide kids toward therapy before medical intervention. At that point, hormone treatments such as puberty blockers are far more common than surgery. They have been available in the U.S. for more than a decade and are standard treatments backed by major doctors’ organizations, including the American Medical Association.

Trump’s goal, he says, is for the U.S. to have the lowest-cost energy and electricity of any nation in the world, including China.

Under the mantra “DRILL, BABY, DRILL,” he says he would ramp up oil drilling on public lands and offer tax breaks to oil, gas, and coal producers. He would roll back Biden administration efforts to encourage the adoption of electric cars and reverse proposed new pollution limits that would require at least 54% of new vehicles sold in the U.S. to be electric by 2030.

And again, he says, he will exit the Paris Climate Accords, end wind subsidies and eliminate regulations imposed and proposed by the Biden admiration targeting incandescent lightbulbs, gas stoves, dishwashers and shower heads.

Trump has pledged to terminate the Department of Education, but he also wants to exert enormous influence over local school districts and colleges.

He would push the federal government to give funding preference to states and school districts that abolish teacher tenure, adopt merit pay to reward good teachers and allow the direct election of school principals by parents.

He has said he would cut funding for any school that has a vaccine or mask mandate and will promote prayer in public schools.

Trump also wants a say in school curricula, vowing to fight for “patriotic education.” He says that under his administration, schools will “teach students to love their country, not to hate their country like they’re taught right now” and will promote “the nuclear family” including “the roles of mothers and fathers” and the “things that make men and women different and unique.”

To protect students, he says he will support school districts that allow trained teachers to carry concealed weapons. He would provide federal funding so schools can hire veterans, retired police officers, and other trained gun owners as armed school guards.

HOMELESSNESS

Trump wants to force the homeless off city streets by building tent cities on large open parcels of inexpensive land. At the same time, he says he will work with states to ban urban camping, giving violators the choice between being arrested or receiving treatment.

He also wants to bring back large mental institutions to reinstitutionalize those who are “severely mentally ill” or “dangerously deranged.”

PUBLIC SAFETY

Trump would again push to send the National Guard to cities such as Chicago that are struggling with violence. He would use the federal government’s funding and prosecution authorities to strong-arm local governments.

He says he will require local law enforcement agencies that receive Justice Department grants to use controversial policing measures such as stop-and-frisk. As a deterrent, he says local police should be empowered to shoot suspected shoplifters in the act. “Very simply, if you rob a store, you can fully expect to be shot as you are leaving that store,” he said in one recent speech.

Trump has called for the death penalty for drug smugglers and those who traffic women and children. He has also pledged a federal takeover of the nation’s capital, calling Washington a “dirty, crime-ridden death trap” unbefitting of the country.

More From Forbes

Where to find funding for nonprofit organizations.

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Dr. April Willis, Principal Business Consultant & Coach at April Willis Consulting, LLC .

One of the greatest challenges for nonprofit organizations relates to funding. Oftentimes, nonprofit organizations provide free or low-cost services to communities in need and they struggle to fund those services. However, just as with most businesses, there are opportunities in the nonprofit world to diversify revenue streams. If nonprofits can secure multiple sources of funding, they not only look more appealing to potential donors, but they also operate a more sustainable model that is not solely dependent on one source of funding. Let’s explore ten go-to sources of funding for nonprofit organizations:

1. Private Grants

Private grants are one of the most common sources of funding for nonprofit organizations. These are generally found through grant research on databases or through local charitable resource hubs. Private grants usually involve a competitive application process and can take up to six months for a response (although the average is 30 to 90 days). Private grants are also usually restricted, meaning you can only spend the funds according to the grantor’s funding priorities. Usually, grants will specify funding in the following categories:

• Capital (buildings, vehicles, items you can hold/touch)
• Capacity (salaries, scaling programs, materials, supplies, overhead)
• Programs (program delivery, administrative expenses, materials, portion of utilities)
• General Operating (any expenses, unrestricted)

2. Government Grants

Government grants typically come with significantly more red tape than private grants. Oftentimes posted as a Request for Proposals (RFP), government grants are more complex in the level of detail required in the application and are held to a much higher reporting standard. Since government grants award public dollars, there is a level of oversight in spending that usually is not present with private grants. In fact, nonprofit organizations may choose to forego a government grant due to the complexity of the reporting alone. Additionally, many government grants may also operate on a reimbursement model, meaning they will pay the organization back after the funds have been spent. If a nonprofit is not in a position to make payments upfront, then this model would be another reason to pass on some government grants.

However, there are many government grants that can be complete game changers for nonprofits because they usually come with the opportunity for annual renewals, indicating an ongoing source of funding, if the nonprofit can meet or exceed all reporting requirements.

3. Fee-For-Service

Contrary to popular belief, nonprofits are allowed to charge for services. Nonprofits are not expected to operate at a loss. However, the fees should be considered low to average, not a premium rate. Additionally, nonprofits may still offer their primary services to the community for free or low cost but may also offer ancillary services or products or help offset the costs of their primary offerings. For example, a food bank may provide free sack lunches on the weekend, but they may also sell a cookbook, offer paid cooking classes and partner with another nonprofit to provide food at a low cost to a homeless shelter. All of these additional streams of revenue can help cover the costs of their primary services while still operating in alignment with their core mission.

4. Local Business Sponsors

Create opportunities for local businesses to support your nonprofit work. Create a one-pager with three tiers of support, with each tier providing certain benefits ranging from social media shoutouts, logos on your website, logos on your swag materials, speaking opportunities at events, free tickets to an event, etc. Get creative and find ways to collaborate with your for-profit partners!

5. Corporate Partnerships

Similarly to the local business sponsors, identify ways for corporate partners to support your mission. National corporations usually have a page on their website related to giving back to their communities. Apply through those pages, but also make local connections because your chances of being awarded funds from large corporations are always increased if one of their employees serves on your board or can advocate for your cause.

6. In-Kind Donations

Rather than asking for checks, determine what supplies/materials/talent you need, and approach organizations and individuals who may provide those needs at no cost.

7. Give/Get Board Requirements

Determine a reasonable amount to require of each of your board members each year. From $100 to $5,000, set a dollar amount that board members for your organization would be likely to support. Allow them to either donate (give) or secure donations from friends/family (get). This can not only help with revenue diversification, but it can also increase your chance of earning grants that want to know the board financially supports the organization.

Events require the most work, but they can absolutely pay off. A few ideas for revenue-generating events may include:

• Annual gala
• Golf tournament
• 5K (can also be virtual)
• Silent auction
• Vendor fair
• Fashion show
• Holiday-themed Event

9. Giving Days/Social Media Campaigns

Ensure your online giving platform is optimized and then engage in Giving Tuesday and other local giving days. Create social media campaigns for each giving event and promote it for at least two weeks leading up to the day. Consider aligning your giving day based on your cause (e.g., Autism Awareness Month, Teacher Appreciation Week, National Rare Disease Day, etc.).

10. Member-Led Fundraising

Establish fundraising goals throughout the year and create fundraising campaigns led by your clients or members. For example, a nonprofit sports organization may ask each athlete to raise $250 by the semi-finals. This may also include crowdsourcing with platforms including GoFundMe and online individual fundraising trackers. Incentivize members/clients to participate by offering prizes/awards for most money raised, most creative fundraising, highest number of contributors, etc.

Hopefully, this exploration of nonprofit funding sources helps you in creating a comprehensive revenue model for your organization. The money is out there, it’s just a matter of creatively accessing the funds.

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