We sort out ins and outs of a regular startup funding and terms that stand for individuals or organisations out of the funding diversity. There are so many ways for a startup to be funded that it is not usually a simple decision to make, like take money from a friend or a fund. Grasping the most appropriate way of being financed will shape the future of your startup and will help you learn whether the idea has future at all. So let’s have a look at the options.

Startup Funding Option #1 Self-funded Startups or Bootstrapping as a Deliberate Decision

If you fail to attract VCs and investment banks, you can turn to bootstrapping simply by finding the right way of your own funds. Secured debt, emptying bank account, or whatever action is required to turn out your pockets to run your startup – all that is considered to be bootstrapping.

Pros The biggest advantage of relying on personal savings when planning a startup is in 100% company’s retention – the business you give your everything and a bit of soul is yours to stay, no matter how successful it will be.

When bootstrapping, you are less subjected to wasting time and money being stuck with procrastination. Moreover, you don’t spend time looking for investments but focus on things that really matter.

Cons Time. It can work as in, as against a self-funded startup. In the world of emerging technologies, the environment is more than competitive, so you might lose to the startup with a similar idea but bigger venture funds and faster time-to-market.

Highly probably, you will have a dilemma, to concentrate either on building a huge audience before monetizing on them, or quickly focus on profitability with aggressive sales campaigns.

You are sure to tighten belts. Reducing expenditure, leaving behind monthly wages, and thinking about people you are working with and their expectations – it would be the reality you will have to put up with at least for half a year.

Resolution Bootstrapping is a terrifying yet fascinating occupation, you need to be ready both mentally and financially. Providing that you already are the ambitious tech savvy entrepreneur highly motivated to do beat the odds and make your software startup a real success.

Irrespective of the funding method you have decided to try on, Perfectial helps funded startups succeed with software Innovations contributing to their technological perfection.

Startup Funding Option #2: Crowdfunding

Whether you’re looking for an initial investment to kickstart a company or a large round of investment to develop – tapping into the power of the crowd can help you raise the money you need.

The idea of crowdfunding which is implemented through the crowdfunding platforms helps an entrepreneur or a startup in need of funding to connect with a community willing to contribute cash. Combining a philanthropic initiatives with business interest has turned out to be a

win-win solution to the startup funding problem. As a result, along with Kickstarter, which is considered to be the most popular crowdfunding platform, new platforms emerge literally every day.

Generally, there are two types of crowdfunding called rewards-based and equity crowdfunding. Rewards-based crowdfunding is a traditional way of raising money for your idea with the help of an online platform and in return for a special reward. In the world of tech startups, by a reward, we usually mean your soft which won’t be sold but granted in return for a small amount of money a person gives you.

Equity crowdfunding which is a comparatively new type of funding do not reap rewards unless they are ownership rights in a business supported. Equity crowdfunding means substantial financing in return for equity.

Pros Even though online crowdfunding usually is about raising small amounts of money, you can take them from multiple backers. In such a way, a startup immediately reach the larger number of the potential investors. Moreover, taking into account that crowdfunding has started as a voluntary initiative, you have higher chances to find your first followers and lovers. Just give people the idea they will believe in.

Posting your startup idea to a crowdfunding platform is the easiest way to validate your idea, see how it resonates with the community, and estimate what amount of funding you can expect in future.

Cons It’s not that easy to get onto the crowdfunding platform. Even if you’ve managed it, things become even harder. Mostly because you will need to build up a huge interest around your project and do it quickly. Moreover, if you fail to receive your desired target, all the money you’ve managed to raise will be returned to the investors.

You should give rewards to peers who’ve backed you. It can be souvenirs, personalized items, or even a chance to be involved into a product you create. Though, with equity crowdfunding, those who contribute could become company shareholders. Of course, in return you will get bigger funding but you should be prepared to share you business with peer backes this way.

Startup Funding Option #3 Angel Investment

Angel investors or simply Angels are accredited investors with defined wealth criteria (if we speak about the US). This category of investors will provide startup funding usually with their personal money, which means that the investment rate would usually be lower if compared to VCs.

The funding strategy of Angel investment is very similar to that of VCs and it’s often concerned with the ability of a startup to scale, show potential, and be ready to be…sold. Helping you to start your own software development business in return for a share in your company is tightly connected with angel’s exit strategy. Angels, similar to VCs will get the maximum of their investment when their share in a company not only gives you income but rather successfully sells out.

Pros and Cons of raising funds from Angel investors is very similar to those of the Venture Capital Firms and can be summed up to:

Immediate funding for your idea that would be sufficient to start and develop your own software business on the one hand, and a certain rate of stake or equity in your startup expecting a considerable ROI for their exit on the other.

Angel’s knowledge, guidance, and experience often comes along with impatience and constant interfering with your job looking forward quicker ROI.

Angels usually understand the degree of risk involved making a software startup and if dealing with the experienced angel entrepreneurs, usually they won’t block a larger investment if they believe in the business’s potential. As always that is on the one hand. On the other hand, the higher stakes the higher payoff is expected, so you and all your companions should be not less tend to take risks.

Startup Funding Option #4 Venture Capital

If you are promising and lucky enough, your idea will be backed by the VC funds in return for a stake in your success. Unlike with the traditional bank loans, you have no obligation to repay VC funds. Sounds quite comforting since if you drown, you won’t have investor debt stone hanging over your head making you reach bottom even faster. Anyway, drawing is not what you expect to receive when launching your startup, isn’t it, so how should you address venture capitalists to finally raise the sufficient capital?

You’d better address VCs upon an “accomplished” startup phase – with a ready-to-breakthrough idea and at least PoC or MVP ready – proving that you’re a 90% future success that’s just not enough money for that yet.

Pros You take the money and keep them for any purpose you find appropriate. VC is just gambling on your business at their own risk. If you succeed, they win and win above average, if you fail – well, their investment turn into their losses, not yours. That means you have no obligation to repay VC their funds.

Usually, it’s going to make your startup successful much faster and easier. Hiring engineering talents, purchase expensive equipment, facilities or technology, as well as other things like marketing your product become much more feasible.

Cons Depending on the amount of shares you grant for a venture firm in return for their money, you may be giving them the right to control and make decisions about your company. Moreover, there always are the obvious risks of growing too fast without the prepared strategy and right structures – being lean and scalable is a must under such financing model.

Finally, due to the high risk the venture funds undertake, it often happens that venture money is not long-term money. As soon as a startup reaches a sufficient size and credibility – the potential is fulfilled – it often can be sold to a corporation or so that another institution will sustain liquidity in future. In a nutshell, the typical scenario is following: a venture capitalist buys a stake in an entrepreneur’s idea, nurtures it for a short period of time, and then exits with the help of an investment banker. We do not say it’s a bad scenario, though we suggest you be ready for it.