How start-ups raise fund

There are multiple channels for start-ups to raise fund. In this article we will focus on investments that are done on equity-based principles. The main trait for this sort of funding, that the investor become a partner for the start-up co-founders, therefor, investor becomes a co-owner in the start-up or the business. This means that the investor shares with entrepreneurs on the profit and on the lose

1- Angel investors

Angel investors are people or organizations that provide money to potential enterprises in their initial phases. Angel investors can coach your company for good equity to compensate the risk (often up to 30%) and are on the lookout for prospective IT unicorns like Google and Alibaba.

They assess the product's marketability along with the technical team and the first adopters. It's not simple to attract an angel investor and demonstrate the potential of your firm. Before reaching out to Angel investors in your industry, you must create a killer pitch, an impeccable business plan, and a proof of concept.

2- Venture Capital Firms

With Venture Capital Firms (VCs) founders can place large wagers here. Professionally managed funds called venture capitals make investments in scalable, high-potential enterprises. Their knowledge and guidance can help small firms that are already profitable grow. However, VC investors typically intend to get their money back in three to five years. Therefore, they wouldn't be interested in businesses that require more time to reach the market.

VCs seek out businesses with a solid strategy and a committed team that require strong leadership and control. If you don't feel at ease with that, it might not be great option for the start-up to get funded.

3- Crowdfunding

Crowdfunding is a way of raising money to finance projects and businesses. It enables fundraisers to collect money from many people via online platforms.

Crowdfunding a revolutionary concept. Unlike VCs and Angel Investors, who are usually an accredited investors with high or ultra-high wealth; Investors from all income level classes can fund start-ups through this sort of platforms

Start-ups and small businesses most frequently use crowdfunding as a means of obtaining alternative capital. It is a creative way of sourcing funding for new projects, businesses, or ideas.

It may also be a means of creating a network of support for the start-up’s product/service. Start-up can access new customers and acquire vital industry information by using the strength of the online community.

Crowdfunding platforms are websites that facilitate communication between fundraisers and the public. Through these platforms, financial pledges can be made and collected.

If the fundraising campaign is successful, crowdfunding platforms typically charge fundraisers a fee. Platforms for crowdfunding are required to offer a safe and simple service in exchange.

A funding strategy that is all-or-nothing is used by many platforms. This implies that if you meet your goal, you will receive the money, and if not, everyone will receive their money back with no repercussions or financial loss.

More details about crowdfunding can be found in this article