Many people dream of starting their own company. It is sexy, hip, fun and exciting. Unfortunately,
there is a downside: tremendous risk. No one wants to assume risk, and much less to actually lose the risked assets. It is never easy to fund your company, because whoever provides the funds, assumes risk. In this article I will go over 10 ways you can fund your startup through investment, the company's own revenues, and other ways, to hopefully make it more clear which ways to start the company make sense for you.
1) Your Own Savings
Imagine yourself funding a company which has a high chance of failure from your own savings. This sounds scary, right? It is very scary indeed. This is the most obvious choice and in many cases least preferred by entrepreneurs because it forces them to undertake the most risk and watch their bank accounts decline on a monthly basis, or even worse, see their debt level rise.
Yet if you have a reasonably quick path to revenue, this might be the best way to fund your company. It is the most risky and the most rewarding way to fund your company. If you get to break-even revenue point and do not take money from any other sources, you not only retain full ownership of the company, but you also retain maximum flexibility in any choice you want to make for the company moving forward.
Do not forget though, this funding method isn't for the faint of heart.
2) Friends and Family
Taking money from friends and family to fund your company is a common idea in start-up folklore and is commonly brought up, so I thought I'd address this way to fund your company. It is my least favorite way to fund your company.
First, you take a chance on your relationship with your friends and family. Second, since most start-up companies fail, you will probably lose their money. To put things most frankly, you will probably displace the risk from yourself and place it on your friends or family while have their investment pay your rent while you lose their money.
This does not seem like an ethical thing to do and while it does take some of the financial risk of your shoulders, you risk losing much more in the long term.
3) Angel Investors
This is one of the more controversial ways to get your company funded (or not). When it comes to pursuing angel investment, both, the pros and the cons are quite strong and convincing.
The pros are that you get to give up only a small part of the company for potentially great connections with people who will champion your company and help you get further rounds of funding and give you great advice along the way. The angel investors tend to have more access to PR, which will also help you along. The money is a pro in itself as well.
The cons are that you give up some control of your company, and you have to go out and spend time and effort seeking this investment. The time and money you spend seeking the investment are time and money that are not being put into your company, and if you do not secure investment, or the process of raising an angel round takes too long, the lack of diverted resources may be too damaging to your company.
Also, not every company is "invest-able" so make sure you are investment-worthy to even consider angel funding as a possibility. To be a type of company which can get investment, you have to be going after a potentially big market and have a technology which can potentially be competitive in the big market you are going after. Your management team must also be top notch.
4) Funding From Your Own Revenue: Ad Revenue
One of the best ways to fund your company is through its own revenue. Since at the time of the writing of this article (Fall of 2010) global advertisement spending is rising, it is a good time to be a publisher. Let me outline the strategy to fund your company perations through ads.
Ad revenue is measured in CPM, which tracks how much money your ads make you per 1,000 page views (note - page views and not unique visitors). CPMs tend to range between $0.30 and
$40.00 so the range is gigantic if you look at percentages. If your business is focused on a niche, you can generally expect at least a $5.00 CPM and if your business does not have a particular niche focus, then your CPM will probably be very low since the advertisers are not sure who they are advertising to.
If you are able to get to the reasonable $5.00 CPM, in order for your business to generate $5,000/month you will need 1,000,000 page views a month. That is obviously very difficult. The only silver linings are that you can get more page views per visitor by building a better product
and that you can work on ad placement to increase your CPM. You can also supplement this with other revenue models, some of which I will outline in this article.