This post originally appeared on startupnation.com/start-your-business
The world is changing. The status quo is being challenged. Business models are evolving, and the future of finance has never been more promising. There are fantastic rewards to be had for those who know how to exploit the new opportunities for business funding that arise in times like these. And if you’re not one of them yet, you will be soon.
The way people fund their business has also been evolving and, in 2022, the traditional ways like angel investment and VCs will walk hand in hand with new and emerging blockchain-based options that offer loans outside the traditional banking system. Today, you can even buy cryptos like Ethereum or Bitcoin and use them as collateral to fund your business with crypto-backed loans.
In this post, I’ll cover six realistic ways startups and entrepreneurs can fund their business, including:
- Incubators or accelerators
- Angel investment
- Venture capital or VC
- Decentralized crowdfunding
- New fintech loans
- Crypto lending
Funding from incubators or accelerators
A business incubator or accelerator is an organization that provides resources, mentorship, and connections to startups. The goal of the business incubator is to help new companies grow by providing training, space, funding, and other resources for business growth.
The popularity of business incubators has grown in recent years because more people are interested in supporting entrepreneurship. They also provide a method of helping new companies find investors before they’re ready for traditional venture capital investment.
Accelerators and incubators are popping up everywhere, especially in areas where there are colleges and universities with strong business programs. This type of funding isn’t generally very substantial, normally ranging from $25,000 to $250,000, and, in return, startups generally provide anywhere from 5% to 15% of their equity.
The only downside to incubators is that these organizations usually focus on tech companies rather than other industries. If your startup isn’t in that industry or one closely related, it’ll be hard to access that funding.
Get angel investment for your startup
Angel investing is a type of investment where an individual or angel investor provides funding to entrepreneurs starting a new business. Instead of lending directly from one person to another, as in traditional lending, the angel investor invests in a part of the startup’s shares, intending to profit as the company succeeds. Typically, this type of investment involves a smaller sum than what venture capitalists would offer, but it generally comes with less control over how the money is spent.
Angel investors can be friends or even family members or simply wealthy individuals with experience in business and finance. They are also often founders of successful businesses with plenty of experience in return on investment.
The first step for someone looking for this type of investment is finding a list of angels interested in your industry. Taking a look at an investor’s portfolio in search of companies that are somehow similar to yours will make it easier to craft a good, eye-catching pitch.
It’s usually possible to find investors in any industry, which is a pro compared to incubators focusing mostly on the tech industry.
Venture capital is always an option
This is where the most significant funding for a startup comes from. When investing in a company, VCs take an active, behind-the-scenes role and provide large sums of money for companies with great potential. They generally invest in a business using shares and sell when they go public or are acquired. Consequently, if you don’t want to give up shares of your business, you’ll have to choose other types of funding.
VCs provide guidance and mentorship and test your company’s direction by assessing its sustainability and financial potential. This is typically the most expensive type of funding since it means the highest level of risk for the investor since they’re taking more chances on your company’s success. One of the downsides to VC funding is that, since they’re investing so much capital in your startup, they’ll usually have a lot of leverage when it comes to deciding how you run your own business.
In other words, you sacrifice freedom in terms of how you invest your money and the direction your company will take for a level of funding you probably won’t get any other way. However, this can be a good thing more than a downside, especially if you don’t have too much experience in the business world.
A new promising solution for securing funding this 2022 comes in the form of decentralized finance or DeFi. One particular implementation of this kind of funding is decentralized crowdfunding. DeFi is changing the way money works in every aspect of finance, from lending to accounting and everything in between. It’s also revolutionizing how startups get early-stage funding by allowing for cheaper and more accessible sources of money.
Decentralized crowdfunding is a way of funding a project or startup without the need for a centralized bank. This type of crowdfunding uses blockchain technology to allow for donations or investments from a large number of people. In this way, it is similar to traditional crowdfunding platforms such as Kickstarter or Indiegogo.
However, decentralized crowdfunding differs from traditional crowdfunding because it allows for more transparency and trust between investors and entrepreneurs. All transactions are recorded on a public blockchain, allowing easy verification of who has invested in what project. In addition, this type of funding can be useful for projects that cannot get funding through traditional channels because of legal restrictions or lack of credit history.
There are several benefits for business owners and investors in using decentralized crowdfunding platforms. These include:
- Early-stage promotion of your project.
- Zero cumbersome paperwork.
- Freedom to run your business how you want.
Also, some companies can raise upward of $1M through decentralized crowdfunding, making it a great option for startups in need of heavy investing. However, there are some drawbacks since it is easy for someone else to steal your idea if you haven’t patented or protected.
Fintech loans for startups and small businesses
New fintech companies like Biz2Credit and Fundbox provide small businesses and startups with excellent new opportunities.
For example, Biz2Credit offers small and medium startups and established companies fair loans that enable them to expand their operations. The online platform provides loans from as little as $25,000 (for working capital) to more thabn $6M (in the case of CRE loans) and has funded over 200,000 small companies.
Fundbox is another firm that uses big data analytics to assist firms in obtaining loans and lines of credit in under 3 minutes based on the information supplied through a company’s accounting software or bank account. Fundbox also provides small business loans to minorities, further democratizing modern finance.
These are only two examples of fintech companies that can help you secure the funding you need to make your startup grow. A simple online search will quickly provide a list of dozens of other companies, some industry-specific, that can make it easy to fund your project.
Secure funds from crypto-lending platforms
Crypto lending can work in two ways to secure funding for your startup. On one side, crypto lending refers to the process of borrowing or lending cryptocurrencies through a blockchain-based platform. This type of lending offers several advantages over traditional lending methods, such as lower interest rates, faster processing times, and no need for a credit check.
Crypto-lending platforms are quickly becoming popular because they offer a way for investors to earn interest on their cryptocurrencies and for borrowers to get access to funding without going through a bank.
On the other hand, crypto lending can also refer to crypto-backed lending. This is a model of lending that uses cryptocurrencies as collateral. Ledn, DeFiner and Liquidity are three examples of popular crypto-lending platforms where you can find funding for your startup using this model.
The benefit for the lender is that they don’t risk losing their money if the borrower defaults. As the borrower, you benefit from accepting a loan with lower interest rates, and you get protection against fluctuations in crypto prices. The moment you receive the loan, you lock in your crypto’s price, and you get the collateral back once you pay it back with interest. The alternative would be to trade your crypto on an exchange for fiat currency, in which case you would get the same amount of money, but the lender assumes market volatility risk and gives up liquidity in exchange for interest.
The bottom line
There are many ways to fund your startup in 2022. Whether you’re looking for traditional forms of funding like VCs, angel investing and incubators, or for more modern solutions like decentralized financing and crypto lending, there are plenty of options out there.
Even so, it’s important to remember that not all methods will work well for every entrepreneur and their goals. Some types of funding cater more to some industries than others, and some are better for different stages of a startup’s development than others. What matters most is that you weigh all the pros and cons of each option and then use your newly acquired funds in the best way possible to make your business grow.
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The post From VC to DeFi: 6 Realistic Ways to Fund Your Startup in 2022 appeared first on StartupNation.