Top Ways to Finance Your Startups

Startup ventures are always exciting because they often bring together young, energetic minds and fresh ideas.

However, there are numerous challenges to establishing a new business that would appear daunting even when you have a great business idea. Often the biggest among them is financing your startup.

Funding a new business venture is not easy in any country due to the number of uncertainties involved.

At the end of the day, startups are often treading uncharted waters and this means there is no guarantee of success.

In Singapore, banks are known to reject a number of requests for small-business loans.

Yet, if every startup entrepreneur lost hope when faced with such a hurdle, this world would have fewer good ideas and fewer great companies.

The good news is that even if your request for a business loan was rejected, there are other means to finance a startup. Read on to find out.

 

  1. Venture Capitals

There are certain affluent investors or financial institutions that may be interested in investing in a startup that they feel has the potential to succeed in the future.

Venture Capitalists, as these investors are called, may also be active in sharing their expertise with the startup entrepreneur.

The venture industry is stronger in countries like the US and China than in Singapore.

But with the Singapore government easing the norms on investing in the country’s startups and providing incentives for the same, there is a visible surge in venture capital funds here.

Examples of venture capital firms active in Singapore are Singtel Innov8, Golden Gate Ventures, and Wavemaker Partners, among others.

However, even though venture capital may appear an attractive option to finance your startup, there are certain risks associated with them.

First of all, venture capitalists often demand steep returns within a short period. Quite often, only startups in certain technology sectors can expect such returns, let alone convince the investors to fund them.

 

  1. Angel Investors

Like venture capitalists, angel investors are also people who are interested to fund a startup, but their motivation to invest may not be the returns but a desire to help an entrepreneur get started on their venture.

Unlike venture capital, which may often be money collected from various investors and placed in a managed fund, angel investors mostly utilise money that they own.

Getting an angel investor to invest in your startup may seem like a safer option as there will be less pressure to come up with astronomically high returns.

But do keep in mind that in return for their funds, they may seek convertible debt or ownership shares.

Singapore has a few angel investor networks you may want to consider approaching. These include Business Angel Network Southeast Asia (BANSEA), Singapore Angel Network (SGAN), and StartUp Equity.

 

  1. Funds from Family and Friends

This is one of the most popular funding methods for startup entrepreneurs. After all, friends or family members know you best and may be more willing to trust your plans than strangers.

They may also be more flexible on repayment conditions than financial institutions and this could work to your advantage.

On the other hand, borrowing money from friends or family members could ruin your relationship if you don’t repay when expected or if there is any misunderstanding regarding the agreed terms.

To be safe, put everything down in writing and repay at the earliest possible time.

 

  1. Crowdfunding

Crowdfunding is an increasingly popular method to raise funds for startups.

Entrepreneurs in the West have been luckier in this with the success of websites like Kickstarter and Indiegogo.

Asian crowdfunding scene is still young but some firms like Crowdo have proved effective.

The concept of crowdfunding is also changing.

Earlier, funds generated through this method were considered donations. But now more and more startups look to crowdfunding as a viable option to get investment.

Equity-based crowdfunding, for instance, promises shares in the company in return for an investment.

A similar fundraising method is peer-to-peer (P2P) lending, where borrowers and lenders get in touch via certain websites.

Just like crowdfunding, P2P is yet to reach its full potential in Singapore but is an attractive option if you do not wish to deal with banks or other financial institutions.

 

  1. Home Equity Loan

Some startup entrepreneurs consider loans on home equity and term loans a good option to fund their ventures.

To be eligible for this, you should own a private home with partial or total equity. Because of regulations from the Monetary Authority of Singapore (MAS), HDB units will not be considered for home equity or term loans.

How much money you can secure in this mode will depend on factors such as the market value of your home and any outstanding amount of your home loan.

Be aware that these loans come with risks that could, at worst, take your property away from you.

Apart from these five options, startup entrepreneurs may also approach Private Equity Firms. These are firms that invest in non-public businesses in exchange for ownership.

The drawback of this method is that such firms tend to limit their investments to companies that are profitable and are in a high-growth stage.

All things considered, the most suitable funding method for a startup will depend on the nature of the business and the risk-appetite of the entrepreneur.

If you are confident of your business generating income quickly, you may approach the likes of venture capitalists but if your venture is expected to accelerate slowly, the other options mentioned above may be considered.

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