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How do I Raise Funds? What Avenues are Available to Me? What Are the Different Types of Investors?

Raise Funds

Money is the key to any business. Without sufficient funds, it is easy for a business to fall into a downward spiral of negative consequences. The biggest reason for many small startups failing each year stems from the lack of funding or capital, as these are essential in sustaining a business and generating revenue. Hence when starting a business in Singapore, it is always important to question how you are going to finance your startup. Here are some avenues available to Singapore businesses in terms of funding a startup.

1. Bootstrapping

Bootstrapping, or self-funding, refers to the process of a business utilising existing resources that it has, in this case using personal savings and finances to fund the startup. This is the most obvious and convenient method of funding for your business as it is easy to invest from your own savings or even get family and friends to contribute. This will give your business a baseline of funds that is simple to raise with minimal formalities and compliances, since the funds are either coming directly from yourself or relatives. Especially since you are taking ownership of your startup, having the means to self-fund would be a good way to be well connected and tied to your business.

The flexibility and ease of funding makes bootstrapping a good first option to be considered, however this only works if your business is a small-scale enterprise. For large businesses, self-funding may be difficult and also unsustainable.

2. Crowdfunding

Crowdfunding is a more modern way of obtaining funds from interested consumers who contribute money to the business as a way of supporting the idea of the business. Crowdfunding is done through online platforms (e.g. Kickstarter, Indiegogo, FundedHere etc.) where entrepreneurs are able to put up detailed descriptions or pitches of their business. They will include the goals and intentions of the business and of course how much funding is needed and why. This will allow funders to have a clear idea of the entrepreneur’s business model and decide if they are willing to support it. If they are sold, funders can make an online pledge to the business and donate funds according.

Crowdfunding is a considerable option because it allows you to seek financial support from multiple funders and at the same time acts as a marketing avenue to the online community. Crowdfunding also makes funding simpler for your business by gaining support from common people as compared to turning to professional investors or brokers which may make the process more troublesome. Moreover, there is a chance in attracting venture capital investment if the business campaign grows and is successful.

However, the trouble with crowdfunding is that it is an extremely competitive avenue to utilise and it can be difficult especially if there exists similar business ideas. Hence, ideas pitched on crowdfunding platforms have to be unique, engaging and reliable if it wants to stand out from others and gain the attention of consumers.

3. Angel Investments

Angel investors are investors who have a high net worth and hence are able to provide financial support for small startups and businesses. In return, angel investors usually gain ownership equity in the business. Angel investors usually contribute in the early stages of a company’s growth, but may also keep ongoing injections to the business to support the business through times of need. Angel investors may also work in groups of networks to collectively decide on investing in a business.

Angel investments are a good alternative of funding as these investors are willing to take bigger risks on the business as they can expect to gain higher returns. Moreover, angel investors not only provide capital to entrepreneurs but also offer mentorship and advice to them. However, a problem with angel investors is that they usually provide lower amounts of investment as compared to venture capitalists.

4. Venture Capital

Venture capital is form of professional financing where investors provide financing to companies that have high prospective growth potential. Venture capital is usually given to small companies with great prospects, or those that are beyond the startup stage and already generating decent revenue. Venture capitals not only provide monetary support, but also support in terms of mentorship and expertise. This can help sustain a business effectively, especially startups.

However, venture capitalists have a short life span in terms of funding for businesses and usually leave after three to five years, once they have recovered their investment. As venture capitalists are heavily involved in your business, it is common that some control over your business may be lost to them. Venture capitalists also usually seek big and stable companies hence being a startup with unconvincing levels of stability may find it hard to attract such investors.

5. Business Incubators and Accelerators

Businesses can seek Incubator or Accelerators, which are programs that fund and assist startups. Incubators and Accelerators in Singapore include Startupupbootcamp Fintech, DBS, Hotspot Pre-Accelerator, Singtel Innov8 and more.

A business incubator is one that nurtures a business, providing tools, training and networking to the business. On the other hand, an accelerator also assists in similar ways but more so to help run or fast-track a business. These programs also provide the business owners opportunities to interact and connect with mentors, investors and the other startups on the program, thus providing for a collaborative support network. However, both of such types of programs usually run for 4 to 8 months and expect a large amount of commitment.

6. Bank Loans

Banks may provide financial help in 2 forms: Capital loans and funding. Working capital loans is one that is used to finance the everyday operations of the company. These are more for uses such as covering accounts payables and wages and not for purchases of long-term assets or investments. Funding on the other hand is one that involves the business sharing its plan, valuation details and reports for which a loan would be given.

Almost every bank in Singapore offers such financial assistance through programs such as the DBS BusinessTerm Loan, OCBC Business First Loan and UOB BizMoney.

There are other forms of fund raising for a business in Singapore that may not directly involve investors but still provide sufficient and attainable capital. There are avenues such as through business plan competitors where prizes for a business can be won, or Peer-to-peer (P2P lending) platforms that connect the public to businesses in need of funding. The Singapore government also provides programs that introduce grants to help growing businesses, such as the Productivity Solutions Grant, Enterprise Development Grant and PACT Scheme.

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