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Which types of funding should you seek for your start-up and why?

Which types of funding should you seek for your start-up and why?

28 April 2021|Crowdfunding, Fundraising, Latest Posts, Launching a business, Money

Which types of funding should you seek for your start-up and why?
Which types of funding should you seek for your start-up and why?

By Steve Jacob, CEO, Fabrik Property Group . Funding can seem like a minefield if you’re starting your first business, but you can actually break it down quite simply by looking at two different funding models. We’ll take a look at both of these now, including the merits of each and what you’ll need to do to access the funding you need. 

Whether you’re an entrepreneur with your sights set on a global empire or simply want a to pursue a business idea based around a single goal or product, you can apply this business advice to help hone your plans. 

1. Putting your funding into a trading company

This is actually the riskier of the two approaches I’m going to outline, so you’ll need to make the level of risk clear to anyone whom you’re asking to provide funding, whether that’s a family member or an angel investor. Investing in a start-up is never entirely free of risk, so be sure that those you are approaching for funding understand that. 

Friends, family and the bank are all a good starting point if you’re looking for funding to put into a trading company. Be honest and clear that it’s a start-up and thus comes with no guarantees. Sell them your vision, your dreams and your plans – along with clarity on how you’re going to remunerate them healthily. 

Family member and friends will invest on you mainly based on trust, so you probably won’t need an in-depth business plan in order to convince them to fund you. You’ll need to show them that you know about the industry you’re looking to trade in, that you have clear goals and that you have a solid approach for reaching those goals. 

If you’re going to the bank, on the other hand, you’ll need a structured business plan in place and to know your numbers inside out. The same applies if you’re reaching out to angel investors. However, even if you’re only intending to go down the friends and family route for your funding, the process of creating a detailed business plan can still be very valuable in terms of clarifying your thinking and your approach. 

Angel investors are more accessible than ever before. From Dragons’ Den to the London Angel Club, you have an array of options. Do your research and check out the various angel investment platforms, not forgetting routes such as well-established Facebook groups and Clubhouse shark tank rooms. 

Whichever you approach, you’ll need to be clear on: 

· How much money you need and why

· What you’re prepared to give in return 

· Why they should fund you – what’s your USP? 

· When you hope to be able to provide a return on their investment

When it comes to your pitch, practice really does make perfect. Even those to whom entrepreneurship comes naturally have plenty of scope to enhance their skills. Watching Dragons’ Den and observing the structure of the presentations closely can be quite revealing. Each pitch should cover the above three points, as well as succinctly describing the venture, why it’s necessary and why it’s going to be successful. Clarity is absolutely essential, as is knowing your numbers inside out. 

2. Asset funding 

The other approach that may be beneficial to your start-up is asset funding. 

In the property sector, as an example, this usually means purchasing a property or an operating company. If you’re new to property asset funding, I recommend finding a Joint Venture partner – someone with plenty of experience who can show you the ropes and help you to reach your goals faster. If you want to flip houses, for example, an established builder could make a good partner. If you’re looking at a development, you could go to a construction company; or for a hotel, you could approach a hotel management company. 

In all of these cases, you can work with the funder and the partner, then split the profit two or three ways. You’ll need to partner with the right people, of course – with those who hold the right experience and also who share your vision and your approach to business ethics. This means vetting potential partners heavily to ensure that they are able to help you in the way you need within the industry you need, without creating any undue (and distracting) friction along the way. 

Both types of funding carry their own unique risks, but also have the potential to reap big rewards. The nature of your start-up and your aims in terms of the size and scale of the company will likely dictate which option you choose, along with an honest assessment of your own ability to achieve your goals solo versus with a JV partner to help you along the way. 

There are, of course, many other ways to source funding, but if you’re just starting out, these two provide simple, effective ways to get your venture off the ground. 

Author Bio

Steve Jacob is Group CEO of Fabrik Property Group, as well as CEO of its subsidiary, Fabrik Invest. Steve has a wealth of property industry knowledge to share. He has been involved in construction and business from a young age, moving from working on site to working in the city as a broker, before founding Fabrik Property Group in 2014.