Today, many wonderful ideas that could have turned into start-ups that change the lives of their owners, and perhaps society, are dying. The failure of these ideas is due to many causes, but the most important one is finance, as finance plays an important role in the success of any emerging company. So today we will try to answer a question asked by many emerging entrepreneurs, “How do I get funding for my project?”
In fact, the sources of funding for emerging projects vary and new sources come to light every day. The search for the right source of funding depends on several factors, the most important of which is the idea of the company itself and the preferences of the entrepreneur.
These financing methods can be classified within multiple frameworks, some are conventional and modern, others are obvious and creative. Let us now pass on these diverse ways and provide a simple introduction to each of them.
Funding using internal (personal) sources of finance
Perhaps these are some of the most intuitive ways entrepreneurs often use in the early stages of their business. These include relying on personal savings or raising funds from family and friends.
One of the advantages of these methods is the ease of obtaining them. There are no legal complications or requirements, as with other methods, and it is also good to not have debts in case the company fails.
Using external funding sources
Not all entrepreneurs have personal savings or access to finance from family and friends. So they resort to non-personal financing methods. Each of the methods we will mention in this context are different, and we’ll start with traditional financing methods.
Traditional financing methods
One of the most common forms of conventional financing is applying for a loan from a bank. This method requires extensive study of the idea by the entrepreneur and a report or business model along with a request for a loan. One of the disadvantages of this method is the debt that the entrepreneur will have to repay in installments each month, and this problem becomes catastrophic if the company does not succeed. Loans also require great effort to explain the idea and convince the bank, as well as many legal complications before obtaining the loan and after obtaining it.
If the loan is difficult to obtain, entrepreneurs can rely on credit cards. Getting a credit card is much easier than obtaining a loan, but it should be noted here that the funding you can secure from credit cards is little when compared to loans. But it is an effective solution if the entrepreneur only wanted to test his idea on a small scale. One of the disadvantages of this method is the small amounts that can be obtained as mentioned above, as well as the need to pay the bank a minimum to keep the credit card working.
Other traditional methods are grants. In contrast to loans, entrepreneurs do not have to pay any debts, and the grant need not be returned if the company fails. However, the disadvantage of this method is the lack of permanent grants and their small numbers. These grants can be obtained from multiple organizations or governments, and the number of grants increases day after day, but they still do not cover all the good ideas that are out there.
Modern financing methods
Funding methods have further diversified after the rise of startups, and new financing methods have begun to emerge. This is inevitable because of the inability of traditional methods to keep up with the changing nature of business.
The first of these financing methods is the prizes offered to start-ups in private competitions, and prizes are not very different from grants, but in this case the start-up companies must compete for them, including special camps and training workshops, and ultimately every entrepreneur has to explain the ideas of their companies before private committees and possibly before the public as well.
Another modern financing method is finding a business accelerator, where the entrepreneur must find a business accelerator suited to the idea of his company. Finance in business accelerators is not usually monetary, but in kind of assistance, where the accelerators provide a place of work and technical support, and also provide communication with experts and investors. To learn about the most important global business accelerators, read the following article by Forbes magazine. If you are interested in business accelerators in the Arab world, we invite you to read the following article on the Arab Entrepreneurs Magazine. We also invite you to wait for an upcoming article that we will prepare to include Arab and international business accelerators.
This leads us to the most popular way for emerging startups. All entrepreneurs at some point seek to get money from investors. One of the disadvantages of this method is the loss of shares in the company. However, there are many pros – the lack of debt the entrepreneur has to pay, the amount of money the entrepreneur gets is enough to get his company to a stable stage, and getting an investor means getting his experience along with his money, which is very important and can push the company forward. Investors can be individuals or investment companies.
It is worth noting here that it is beneficial for the entrepreneur to continuously communicate with investors to keep up with local and international conferences. In this way, he will continuously learn about the latest trends in his field and will be able to identify the most suitable investor who will make his path to success shorter. An example of this is the attendance of the Syrian International Business Association at the Syria Digital Lab 2019 in Brussels, an event in which the association tried to reach out to investors and entrepreneurs and try to establish communication channels between them, in an effort to support entrepreneurs wherever they may be. Entrepreneurs can visit our blog regularly as we announce the most important conferences happening soon.
This leads us to the last financing method we are presenting today, one of the most modern ways: crowdfunding. The term crowdfunding first appeared in 2008 or shortly before. The idea of crowdfunding sites is to collect small sums from a large number of people, so the end result is a large sum of money. If you can convince a million people to give them one dollar, you will ultimately have a million dollars. The success of this idea depends in particular on the ability of the entrepreneur to explain his idea in the best possible way, and lead and publicize the campaign of crowdfunding. One of its many advantages is not losing any part of the company or paying any premiums. For a list of the most important group financing platforms, please visit the following link for an article prepared by Arageek magazine.
This was a quick overview of some of the available funding avenues that any entrepreneur can use, and move his ideas to the implementation stage. But it should be noted that the article was just an introduction to many other articles in which we can separate each of these ways separately, and here we need your help to tell us which way you prefer to explain in more detailed, or to remind us of other ways to enrich our article.