Building a business from the ground up is no easy feat, but for tech startups in particular, it can seem like the odds are stacked against you at the worst of times. As one of the most lucrative industries for startups, budding tech enterprises are notorious for fizzling out before they even get the chance to make a splash.
The main obstacle faced by tech startups today, is just the inability to make themselves or their products and services stand out in an oversaturated market. And if you’re not able to differentiate your brand from its competitors in time enough to start turning your first profit, you’ll find yourself running out of capital and deregistering your business faster than you can blink.
So how can you equip yourself with the funds you need to fuel your business’ preliminary developments? We’ll be sharing just the answer to this question today by outlining 6 of the best methods for funding your tech startup from infancy through to its minimum viable form!
1. Do some bootstrapping
The first thing you’ll need to determine is just how much money you’ll need. Here, it pays to work with a financial planner and develop a basic strategy for injecting your enterprise with the cash it’ll need.
The simplest solution (but by no means the easiest) is to forgo your salary for the sake of freeing up your existing funds for business development. This strategy is called ‘bootstrapping’, and can be credited for the success of some of the world’s most prominent tech companies (including Apple!).
Of course, bootstrapping isn’t for everyone, nor is it a long-term approach to building a viable business. Even so, if you can stand by your business idea and have equipped yourself with a clearer understanding of your finances as they currently stand by consulting with a financial advisor, then you can practice a little healthy bootstrapping with a set end date in place. And from that point onwards, you may be able to swap in your bootstraps for a stylish pair of loafers, so to speak.
2. Get creative with your income streams
Did you know that Tesla was built off of the profits generated by selling carbon credits? And did you know that for around ten years, one of Tesla’s most lucrative income streams was actually just the selling of their carbon credits? Yes, despite originally opening its doors back in 2003, the EV and clean energy manufacturer didn’t actually start selling their vehicles en masse until about ten years ago. This is due to a few factors, namely that EVs were still quite expensive to produce around the time that Tesla first opened their doors, and that Tesla didn’t rely on car dealerships to sell their vehicles, but more on web sales. This resulted in the company turning minuscule profits from vehicle sales in their first years of operation.
Contrastingly, Tesla made around US $5 billion from the sales of carbon credits to other automotive manufacturers over the last 3 years alone. This income allowed Tesla to further develop their clean energy technology to the point where they’ve been able to produce their vehicles at a lower cost. And that brings us to where we are today.
Tech entrepreneurs can take inspiration from Tesla’s own experiences with thinking outside of the box when it comes to optimising their income streams. Think about what feasible services or products your company could produce while you’re still working on that ‘million dollar idea’. Who knows? These alternate income streams could end up providing you with all the funding you need to really kick your startup into fifth gear.
3. Take out a business loan
The alternative to bootstrapping is to secure a business loan in order to ensure that both yourself and any of your employees can enjoy a salary in your company’s earlier quarters. This strategy is also called debt financing, and whilst it can be effective, it can also come with its fair share of risks.
For starters, there’s no guarantee that your company will be able to generate profits at a fast enough rate to make your loan repayments. And a failure to make your repayments will naturally result in your debts accruing interest – with risks of your debts snowballing further from there. Similarly, your startup enterprise may not be able to qualify for a large enough business loan in the first place, and if you’ve estimated that you need a particular amount of capital for your funded development strategies to be effective, taking out a smaller business loan could be a worse move than not taking out a loan at all.
In some other cases, however, like when you’re planning for an imminent product launch and want to do your marketing efforts justice, a business loan could mean all the difference between a good start and a great start. So think critically about where a loan may be most beneficial for your enterprise.
4. Find the right investor or VC firm
And what if you don’t qualify for a big enough business loan? Then one of the best methods for funding your startup is likely to be finding the right investor or venture capital firm to help provide the cash injection you’ll need to really get the ball rolling. And of course, finding the right investor means putting together your business model and scheduling some pitch meetings.
Putting together a business plan is a vital component of founding a tech startup today, as it will help you demonstrate to potential investors that your business idea is fully fleshed out, feasible, and can easily be differentiated from any potential competitors in your market. The stronger your business plan, the more likely you are to attract motivated investors who can help you get your enterprise where it needs to be.
And if you are able to attract the right investor using the right information, you can boost your chances of partnering with other industry professionals or even industry leaders who share your same goals or vision. And forging these partnerships can truly be just as valuable as the funding itself.
5. Start a crowdfunding campaign
Speaking of forging connections, one of the trickiest components of establishing any tech enterprise is, as we’ve said, just learning how to present your company to the world. If your tone and marketing materials are too serious, you could risk alienating the public. If they’re too cavalier, however, you may struggle to be perceived as a genuine fixture of the tech sector.
Thankfully, as tech startups typically develop out of a need to provide solutions for some of society’s most pressing problems (i.e. climate change, cybersafety, etc.), presenting your company to the world can be as easy as showcasing the passion behind your cause. This purpose-driven approach isn’t just effective when attracting angel investors – it can also be a great way of building up a crowdfunding campaign.
Take Bitgreen as a prime example here. The US-based climate-investment blockchain platform was able to collect around $5 million in funding just last year by ensuring that their message centred around their cause. Climate-conscious consumers who engaged with that message then readily contributed to the cause, generating both funding as well as positive publicity for Bitgreen.
In this regard, starting a crowdfunding campaign could start a forward momentum for both your startup’s marketing and financial management efforts. So develop your campaign materials now and in tandem with your business plan.
6. Apply for incubator or accelerator programs
Finally, tech entrepreneurs also always have the option of applying to government grants or even participating in small business development projects. No matter where you are in the world, there’s guaranteed to be government- or even privately-funded business development programs available to you, so start Googling for incubator or accelerator programs which could help provide your startup growth strategising with a little extra structure.
Alongside being valuable with regards to potentially growing your business funding, participating in incubator programs may also help you forge contacts within your wider industry network. Connecting with other participants in your incubator (be they fellow entrepreneurs or even program mentors or coordinators) can help ensure that your company maintains supporters within its wider industry. Your industry connections could also help you when it comes to scaling up your business, namely by sending emerging industry talent your way and greatly simplifying the process of recruiting when it does come time for your enterprise to grow.
You may opt to use one or perhaps even several of the methods outlined above when seeking funding for your own tech startup. No matter what funding avenues you select, however, remember to ensure that your startup stays agile and adaptable. That way, you can continue to grow unhindered until your revenue streams are strong enough to support themselves.
This article is part of a partnership with Best Financial Planners Australia. For partnering opportunities, contact [email protected] or [email protected].
