How to raise capital for your start-up


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How to raise capital for your start-up

Starting a business can be an exciting and fulfilling experience, particularly when you see your hard work come to fruition. However, before the profits come rolling in, you will probably need a certain amount of capital for your start-up. Depending on the kind of business you have, you may be able to self-fund initial expenses, but for business ideas that come with higher up-front costs, some additional funds will need to be raised. The amount of capital required will depend on the type, size and scope of your business.

A good business pitch should be clear and succinct and also show your business' momentum.

Getting started

Before starting the hunt for funding, it's important to know whether your business is feasible and be able to prove the viability of your idea to investors. This involves conducting preliminary research to evaluate the market for your product or service, assess your potential competitors and gain a greater understanding of the skills you will need to ensure your business thrivesi. The Australian Government and state governments provide a range of informative online resources for conducting market research.

Go for a grant

Once you can show the viability of your start-up, you can check if your business may qualify for one of the many grants available from local, state and Federal Government or private companies. The Grants and Assistance Finder is a search engine designed to help you find a grant or financial assistance package in your state, although some are Australia-wide. The types of grants that your start-up may be eligible for will depend on the size and scope of your business, as well as the business sector you wish to operate within, whether it's IT, arts and culture, or the environment and energy sector.

Applying for grants is often a complex and time-consuming process, involving plenty of research in advance and a lot of paperworkii. The grant or financial assistance process may have a number of stages; an expression of interest may first be required before submitting your proposal as well as documentation proving your start-up's eligibility and merit. This could include a business plan, proof of concept and preliminary market research.

Before applying for a grant, it's important to have a solid business plan and strategy to prove your business' financial viability.

Find an investor

If you have business contacts or personal connections that would be willing to make an investment in a start-up, it could be worth approaching them and giving your best pitch to see if they're interested. Pitching your business concept may take a few goes to perfect, but a good pitch - whether it's face-to-face, via email or even over the phone - should be clear and succinct. Ideally, a convincing pitch will not only describe your business' goals, but also showcase your team's skills and experience as well as demonstrate any proven success your start-up may have already achievediii.

Rather than pitching to individuals, depending on the type of start-up you have and the amount of capital needed, it may make more sense to present your business concept to a group of potential investors, or "angels". There are a number of websites dedicated to pairing businesses with angel investors, or investors looking to yield higher returns by directly investing in a growing business rather than just the stock marketiv. The added bonus is that angel investors are often willing to contribute not just their money, but also their expertise to help the start-up succeediv. To find an angel investor on sites such as Businessangels.com.au or Sydneyangels.net.au, businesses will generally need to pay a registration fee and complete paperwork similar to that of applying for a grant. The goal is to showcase your start-up's background, business plan and strategy for future growth. These will then be matched with angel investors, who can choose to provide capital for an equity stake in the company.

Try a crowd of backers

Crowd-funding has also become a popular way to gather funds for a business venture or project. Kickstarter, a crowd-funding platform which has seen over 58,000 creative projects supported since its launch in 2009v, is now open to Australian entrepreneurs looking to raise capital. Similarly, Indiegogo isa popular platform to raise funds, and can be used to collect money for for-profit ventures and small businesses as well as creative projectsvi. That said, making your project stand out and attract funding on huge sites like Kickstarter or Indiegogo can be a challenge, with much marketing of your business or idea needed to garner public interestvii.

Due to the sometimes fickle nature of crowd-funding platforms, it's best not to rely on achieving capital through crowd-funding alone. Aiming for a range of funding sources including government grants, direct investment and crowd-funding may help to raise capital and give your start-up a good chance to achieve success. Ensuring that you keep your start-up costs as low as possible in the initial stages of your business, for example by using low-cost marketing strategies and trying to get support from a business incubatorviii, can also help make a little go a long way.


iBusiness.gov.au, What do I need before I get started? , Australian Government, viewed 24 March 2014,
http://www.business.gov.au/Howtoguides/Thinkingofstartingabusiness/Pages/WhatdoIneedbeforeIgetstarted.aspx

iiMilman O 2012, '10 top government grants for start-ups', StartupSmart, 21 August, viewed 26 March 2014,
href="http://www.startupsmart.com.au/business-grants/10-top-government-grants-for-start-ups.html

iiiLeibovich H 2013, 'Herzi Leibovich: Here's seven tips for better pitches', Business Review Weekly, 14 August, viewed 26 March 2014,
http://www.brw.com.au/p/entrepreneurs/hezi_leibovich_here_seven_tips_for_priwGTDpdgon9SV5Tzy8PI

ivBusiness Angels, Private venture capital through angel investors, viewed 26 March 2014,
http://businessangels.com.au/

vKickstarter, Seven things to know about Kickstarter, viewed 26 March 2014,
https://www.kickstarter.com/hello?ref=footer

viIndiegogo, Features of Indiegogo, viewed 26 March 2014,
http://www.indiegogo.com/features-of-indiegogo

viiGregory M 2013, 'The start-ups struggling to make a name through crowdfunding', BBC Business News, 17 December, viewed 26 March 2014,
http://www.bbc.com/news/business-25403081

viiiCass J 2012, 'How to keep start-up costs low', Just Creative, 20 January, viewed 26 March 2014,
http://justcreative.com/2012/01/20/how-to-keep-start-up-costs-low/