Six Modern Ways to Fund Your New Business Venture

You’ve got a fantastic business idea, and there’s an encouraging gap in the market for your product.

But there’s also a hole in your pocket. The big banks have turned you down for funding. Nobody close to you has money available. So who can you turn to for a funding leg-up?

There are plenty of contemporary ways to seek finance for your business start-up, all approaching funding in an exciting new way.

Crowdfunding

It’s a popular phrase now, but what exactly does it mean? It’s a way of funding a risky start-up project by drawing lots of small investments into one large investment parcel, generally through a digital platform. The federal government is currently working on draft legislation to regulate this new market. There are two main types of crowdfunding:

  • Rewards-based crowdfunding. Here people contribute to the development of an unbuilt or untested product, with the guarantee of being among the first to receive rewards if the product or service kicks off.
  • Equity crowdfunding. Here investors pay to own a portion of the company, with current laws precluding lower-income investors from participating. This, however, looks set to change shortly, allowing those with lower income to participate.

According to Business Insider Australia, hundreds of investors have cumulatively sunk more than $2 million into high-growth tech companies since VentureCrowd’s equity crowdfunding platform was launched in 2013.

2. Business incubators

Incubators are entrepreneurial groups focused on innovation, literally ‘incubating’ a product or service idea from a very early phase in its life. Time frames allowed for development tend to be loose. Some incubators operate privately, while others are backed by governments or major corporations looking to pick up exciting projects before anyone else gets a chance.

3. Accelerators

Accelerators are management teams working with start-up businesses within a set time frame, offering mentorship and guidance to develop the product or service and bring it to the market. Businesses are given a small seed investment and support in exchange for a small equity. Places with top accelerators are in high demand, and many have a strict application process.

4. Angel investors

Also known as angel funders or business angels, these affluent entrepreneurs offer capital for start-up businesses looking to get a foothold in the marketplace. Increasingly, individual angels are grouping together into angel groups or networks to share ideas and pool resources, allowing for greater investment scope.

The idea is taking flight in Australia, with business angels keen to offer both venture capital and mentor support to risk-taking start-ups with bold ideas.

5. Government-backed venture capital

The Australian Government has a suite of programs designed to help steer start-ups through the early ‘valley of death’ phase where so many novice businesses fall over through inexperience and lack of funds.

Venture capital programs such as the Innovation Investment Fund, Early Stage Venture Capital Limited Partnerships and Venture Capital Limited Partnerships work with private venture fund managers to give money and expertise to innovative but high-risk young companies.

6. Peer-to-peer (P2P) lending sites

P2P lending bodies formed to connect lenders wanting a good return on their money with borrowers wanting a simple, competitive loan through a digital platform. P2Ps look set to shake up business finance in Australia, bypassing the banks and offering an attractive, alternative form of finance for start-ups.

In the past, start-ups such fax to email services or new social media platforms might have struggled to find funding. But now, a ‘no’ from the bank no longer has to mean the kiss of death for your cherished business project. Investigate this new world of venture capital, but remember to read the small print too, and ensure you check all terms and conditions thoroughly before signing up.