10 Best Startup Funding Sources In 2021, Part 1

funding Jun 18, 2021

For a lot of people, the ultimate dream is to open a business. Starting your own business can be very rewarding and financially lucrative if done right. While exhilarating the idea is, it also conjures feelings of apprehension and doubt. For those that do not have a business degree, knowing where to start can be daunting.

One of the most important aspects of launching a new business is beginning with enough capital. Most people don't have the tens of thousands of dollars required to open a business, so how do you go about it? How can you find the financial resources required to start the business of your dreams?

We have compiled a list of the 10 best solutions in 2021 for your startup funding needs.

1. Crowdfunding

Crowdfunding is exactly what it sounds like, generating funds from a crowd. It's a great way to get the name of your business out into the public and let everyone know that you are in need of capital. There are over 600 crowdfunding platforms on the internet right now. Some of the most well-known are GoFundMe, Fundable, and Patreon.

These platforms make it easy for small businesses and entrepreneurs to begin raising initial capital or fund a project. Every platform has its own terms so it is essential to research and find the best one for your needs.

To begin a crowdfunding venture, you need to join a platform and form your campaign. It is imperative that you highlight to the world what the mission and purpose of your business (or future business) are.

Why should people donate money to YOUR cause in the sea of other opportunities? Spend time crafting your pitch so it's the best it possibly can be. When you are ready, publish it so it goes live for everyone to see. Anyone that comes across your campaign can donate, which may enable you to raise money faster. Then, spread the word on social media.

An effective way to entice people to donate to your cause is to offer an incentive. Maybe you give out equity in your business for a certain donation size. Maybe you have rewards that you hand out to donors. Some platforms operate like a business loan, where many people lend you a small amount of money, with the expectation that you will pay back their small deposit with interest.

There are some drawbacks to crowdfunding. The first major drawback is that they are time-consuming. Not only do you need to create the campaign, you need to market your campaign pretty heavily to attract enough attention. Then you need to either hand out rewards, recognition, or equity to your donors. Taxes will likely need to be paid since it will be considered taxable income or charitable donations.

Also, most crowdfunding campaigns fall short. A recent study concluded that from 2014 to June 2021, only 23.3% of projects were fully funded. That being said, depending on your financial needs, a crowdfunding campaign may be what enables you to start your business.

2. Small Business Grants

The obvious advantage to grant money is that there are generally no strings attached. You don't need to pay it back with interest, like you would with loans, and you don't need to deal out portions of your company, like you would with venture capital.

Small business grants may be hard to find, depending on where you are located and the business you intend to open. The good news is, there is generally some kind of grant out there for everyone. There are small business grants for specific industries or niches, grants for minority groups, and grants for businesses located in certain parts of the country.

Small business grants or entrepreneur grants may not provide your entire startup amount, but it helps. You may be able to start your business with some crowdfunding and a couple small business grants. Taking the time to research the opportunities available to you may just dig up enough financial resources.

📌 Pro-tip:  Join nearly 100,000 others getting early access to grants and other funding opportunities on the Skip app.

3. Family and Friends

In addition to crowdfunding and seeking out grants, funds from family and friends can be a great way to muster some initial capital for your business. One of the positive aspects of gathering funds from those close to you is that they will likely help you market your business by word of mouth. People share more about things they are invested in.

If you do decide to ask family and friends, it's best to approach those who have a business background or those who have faith that you will succeed. Remember, the biggest repercussion of family and friends loans comes if you can't pay back their investment; your relationship will suffer.

The Minority Business Development Agency developed 6 tips for borrowing funds from family and friends. It's a helpful tool that you should review before heading down this route. If you do, having a business plan can offer added comfort to those who invest in your startup

4. Angel Investors

If you have exhausted your crowdfunding efforts, found your grants, and asked your friends and family, but you still don't have enough capital to launch, what do you do? Well, you could consider approaching an angel investor. Of course, you could skip the aforementioned ideas and head right to an angel investor as well.

If you haven't heard the term before, an angel investor is a person who invests money. These folks are high-net-worth individuals who invest money in new companies or startups in exchange for equity in the business. Angel investors are typically easier to work with in the beginning stages of your business, than other investment or venture capital firms.

While it is a good idea to pitch your idea to several angel investors, keep in mind that many will invest in industries that they are familiar with. That's not always the case, but often times it is. One place to start looking for angel investors is the Angel Capital Association.

5. Venture Capital

The final approach to funding your startup without taking some sort of loan is through venture capital. You've probably heard the term thrown around before, but what does it mean? Venture Capitalists are investors who typically invest significant amounts of money in businesses, for the sole purpose of expediting the company's growth, and increasing profits.

Venture capital is another form of equity financing, where they give you a large amount of money in exchange for a big piece of the pie (think Shark Tank). Venture capitalists are usually very picky in whom they invest because they look for a 10x return on their investment, and sometimes more. They invest more than angel investors, but they expect more in return as well.

If you are starting another business, venture capital may be a solid route for you to choose. Demonstrating past business success will enable you to prove that you can be successful again. If you are an entrepreneur starting your very first business, then venture capital is likely not your best option.

Related: 10 Best Startup Funding Sources in 2021, Part 2

Want more small business grants and funding opportunities?

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Dan Ansaldo

Dan is the Head of Content for Skip and has written on numerous topics including business, education, government, history, and more.

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