Silicon Valley may be the spiritual home of the tech startup, but entrepreneurial fever has spread around the world as advancing technology and new funding models continue to empower businesspeople who are keen to turn their big idea into reality.
While the US remains the top-ranked country for startups, India and Indonesia are growing hotspots for startup activity as entrepreneurs look to buoyant Asian markets to establish new businesses.
Finding seed funding still remains a major challenge for startups, but with the rise of new funding models and increasing support from government grants, startups are now faced with a range of funding options.
Here are eight ways to fund your startup in the new economy.
- Government grants
Government grants are used to encourage business development in key growth areas, and are usually distributed to startup companies based on their industry. Often, grant money is released in stages when the company reaches pre-determined milestones, but be aware that some grant terms may demand equity in your company in return. ACE Startups Grant is a great starting point if you’re a first-time entrepreneur, while the Early Stage Venture Fund (ESVF) partners with venture capital firms to invest in early-stage technology startups.
- Accreditation schemes
Accreditation schemes help startup companies win contracts with large organisations that would otherwise be out of their reach. This is an excellent option if you’re ready to begin operating and need a cash flow injection to get your startup off the ground. Accreditation@IDA, for example, assists the growth of early-stage technology startups by connecting them with government buyers and large enterprises through industry-specific workshops and demonstration days.
The incubator concept was popularised in Silicon Valley, but has since spread around the world as startups seek out mentorships, skill-sharing networks and seed money. While there is a lot of competition among startups to secure a place in an incubator, more are popping up all the time. JTC LaunchPad @ one-north, for example, is set to house some 750 startups by 2017 in the fields of biomedical sciences, infocommunications, media, electronics and engineering industries.
Accelerator programmes offer startups mentorships, office space and funding – similar to incubators – but in a much more intensive manner with the aim to rapidly grow the business. These programmes usually last for a few months, and many take equity in exchange for their investment. Airbnb and Dropbox both came through accelerator programmes at Silicon Valley-based Y Combinator. In Singapore, the Sector Specific Accelerator Programme is a government initiative that supports medical and clean technology startups to build their management teams, meet regulatory requirements and connect with potential customers.
- Angel investors
You don’t have to resort to reality TV to find an angel investor willing to fund your startup. Angel investors are affluent individuals who provide startup funds in return for a stake in your company. However, it’s important to be selective about the kind of investor you want to work with. Some will be content to act as silent partners, while others will take a more hands-on approach in your business. Investor networks are your best entry point. The Angel Investment Network, for example, connects a range of domestic and international startups with interested investors.
Crowdfunding is an excellent option for entrepreneurs who want to retain complete control over the direction and development of their company, and avoid giving up equity to investors. Kickstarter is perhaps the best-known crowdfunding platform. In this method, anyone interested can contribute small amounts of money in exchange for rewards, and money is released to entrepreneurs when funding goals are reached. However, Kickstarter is not the only crowdfunding platform out there. Indiegogo has raised more than US$900 million for campaigns across 223 countries.
- Peer-to-peer lending
Peer-to-peer lending (P2P) is similar to crowdfunding. However, there is one key difference, which is that investors receive cash returns rather than rewards, and borrowers must repay P2P loans with interest. P2P lending essentially works the same way as a bank loan, except that instead of a bank providing funds, a pool of investors provides the money. P2P lending platform Crowdo, for example, has funded 500 startups with investors from 70 countries.
- Barter exchange networks
Swapping products or services in place of cash transactions is an old concept, but the rise of online barter exchange networks has made service swapping a viable option to help get your startup running. Platforms like IMS Barter sell your excess goods or service to other members in exchange for trade dollars. You can then use your accrued trade dollars to purchase a wide range of goods or services for your startup. The Platform Collective is another excellent barter exchange network that links Singapore startups willing to trade in goods and services.
Whether you’re looking for the mentorship available in an incubator or accelerator programme, or want to retain control over your company while raising funds through a crowdfunding or P2P lending network, the right funding model for your startup is now within arm’s reach.