So, you’ve had the idea, you’ve sorted the business plan, and now you need some cold hard cash to kick start your plans into reality. But where does one turn to find start up capital? You can use traditional ways like borrowing from a bank (like us) but there are plenty of options for sourcing revenue that can complement traditional lending, to help start and grow your business.
Here are 5 ideas for funding your start-up that could ease the burden of debt and kick start your business.
1. Angel investors
An angel investor is simply a high-net-worth individual (often a successful entrepreneur) looking to invest funds in an innovative start up business they can contribute their skills to. Angel investors tend to look to invest in high-growth businesses that are focused on significant global opportunities. Most angel investors typically pick investment opportunities in their fields of expertise so they can apply their experience to helping the business succeed.
They usually look for investment opportunities at earlier stages in the life of a business than other types of investors or lenders. If they can see the potential of an idea, they’re more likely to invest in a young start up business they can nurture.
In return for capital investment and their expertise, angel investors usually take an equity share in the business and expect a healthy short-term return on their investment.
The ICE Angels are a great place to start. Here is an introduction to how the process works and how to get in touch with them.
Crowdfunding is the newest trend in raising capital and is most appropriate for higher-risk creative and artistic projects that can be harder to fund through traditional providers.
Crowdfunding websites often offer rewards, discounts and special privileges (such as receiving a pre-release or beta version of a product) in return for small investments.
Each crowdfunding website operates to different rules, so make sure you research your options carefully before choosing one as a platform to seek investment.
3. Grants and financial incentives
There are a wide variety of grants and incentives on-hand to give Kiwi start-ups a welcome boost. Even some free advice and contacts could be all you need to take your business to the next level.
Here are some options to explore:
Callaghan Innovation is a stand-alone Crown entity that works with businesses of all shapes and sizes to innovate and grow.
Callaghan Innovation administers more than $140 million a year in business research and development (R&D) funding through three grants programmes:
• R&D Growth Grants for businesses experienced in research and development in New Zealand, to support an increase in investment.
• R&D Project Grants for smaller research and development programmes and start-ups and those new to R&D.
• R&D Student Grants to support students to work in a commercial research and development environment.
Find out more about grants offered by Callaghan Innovation and how to apply.
New Zealand Trade and Enterprise (NZTE) Capability Development Vouchers
Your business could qualify for vouchers to help pay for services such as workshops, courses and coaching that build your skills and capability.
Find out if your business qualifies.
Regional Business Partners
There are 14 Regional Business Partners in every corner of the country to help local businesses grow and innovate, by providing expert advice and even access to funding. Their services are free of charge and you get in touch with them at anytime you need advice.
Find out how to contact your local Regional Business Partner.
4. Borrowing from family and friends
Getting a cash injection from a family member or friend can be a good option provided you are aware of the risks. They’re likely to trust in your judgement and be more accepting of your business case than traditional lenders and investors.
Introducing finances into any relationship can strain ties and damage trust if things don’t work out as planned. Always make sure you document the arrangement with a signed contract that sets out the terms and conditions in writing. If you are dealing with a significant amount of money, it’s a good idea to consult a lawyer to help you draft the contract.
5. Offering sweat equity instead of cash
Cash doesn’t always solve the problem – offering sweat equity is a good way to boost your capability and grow your expertise. Sweat equity involves contributing to a business or project in the form of effort – instead of financial equity, in the form of capital. In a partnership, some partners may contribute only capital and others only sweat equity to the business. In this case, a person is able to supply their skills or experience (instead of capital) in exchange for a share of the business or future payment.
Here are some examples where offering sweat equity could work:
• A carpenter being offering a stake in a carpentry business in return for fitting out a premises or workshop.
• An artist supplying their works as part of a shared space or for future payment.
• A group of people pooling their skills and efforts to launch a cooperative – such as a grocer or retail space.
Once you’ve worked out the best way to fund your start up business, we have small business specialists available to help you manage that money to grow your business. To talk to us about any of the angel investors and business incubators we have teamed up with, call us on 0800 269 763.