As a startup, funding can be a challenge, but funding can be a necessity to create growth. There are many different forms of funding, so it can be difficult to find out which one is right for you. As a startup, there are two things you need to know before applying for funding:
- What stage is the company at?
- What types of funding are there?
What stage is the company at?
You must know the stage of your company, as the stage can help to choose the right type of funding. Some types of funding will be relevant at different times, depending on the stage the company is in.
There are basically 4 stages a startup can be in:
Stage 1 – Idea/concept
Stage 1 is the earliest stage. In this stage you have an idea, look at the business model, analyze the market and the problem.
Stage 2 – Development
In the development stage, you develop your product or service. You may have a prototype and some potential customers in sight.
Stage 3 – Go-to-market
In this stage, you are entering the market, you have control of your product or service and you already have some customers. Here you have to start focusing on your marketing and sales strategy.
Stage 4 – Growth
Here, your product or service has been well established on the market. At this stage, it is about scaling your company, by gaining larger market shares or entering new markets.
What types of funding are there?
When you have a handle on what stage your company is in, it’s time to look at what types of funding are available. There are many types of funding, some of the most used are described here.
Own resources
Many people finance their startup business with their own resources such as savings, income from work or other things. If you finance with your own resources, you typically have an approach to keeping costs low.
Friends and family
If you start a business, you can choose to raise capital from friends and family, as they will typically be your biggest fans at the start and want to help. Borrowing from relatives can be a good solution, but problems can also arise – therefore it is a good idea to have some formal guidelines written down in connection with this type of funding.
Startup competitions
There are many competitions for startups in Denmark, where you can win money that can help with start-up capital. In addition to winning money, you can also be offered free advice and office space.
Entrepreneur grants
There are a number of companies, organizations and foundations that want to support entrepreneurs and therefore distribute grants. There are various grants, but they are usually awarded to completely new companies that need the capital. Along with the grant, there can also be other benefits such as free sparring, office space or networking. Some large entrepreneurship grants in Denmark are CBS Startup, Karmakapital, Kickstart and NOVI Newtech.
Crowdfunding
Crowdfunding is where several people invest a small amount of money. There may be a minimum amount that must be invested per person, therefore everyone does not necessarily invest the same amount of money.
Within crowdfunding, there are four different types:
- Donation based
- Reward based
- Loan-based
- Share-based
Donation-based crowdfunding is exclusively donations to the company. This means that there is no repayment or interest.
Reward-based crowdfunding means that the company receives a cash contribution in return for having to deliver a return. The consideration can, for example, be the product that the company in question sells.
Loan-based crowdfunding generally involves a platform facilitating loans for companies or projects. It works a bit like borrowing money from the bank. Here, lenders can bid on part of the loan and receive a fixed interest rate.
Share-based crowdfunding is based on the investor putting money into a company in return for an ownership stake in the company. To use this type of crowdfunding, the company must be run as a limited company.
Accelerator programs
In an accelerator programme, you enter a development course where the focus is on developing your business. The accelerator program can last from a few days to 12 months, where you will typically have access to 1:1 advice, networks, mentors, workshops, financing, knowledge and more. These programs are available both for free and for a fee. Some accelerator programs offer some form of funding.
Business angels
A business angel is a person who invests his own funds in companies. Business angels can, for example, be a business manager, business owner or successful entrepreneur. A business angel can invest alone or together with other business angels.
Subsidy scheme
There are grant and support schemes that can help finance critical activities in a company. This can, for example, be within research, development, market maturation and other areas. Support schemes aim to create development, growth and jobs and are typically granted to entrepreneurs, start-ups and established growth companies.
Venture capital
There are venture capital funds that invest venture capital in startups where scaling potential is seen. These funds typically make equity investments, which means they become part owners of the company. In addition to the investment, the funds will typically also make knowledge and networks available to the company.
Loan
There are several types of loans for entrepreneurs. The Growth Fund, for example, offers loan products specifically targeted at entrepreneurs. It is also possible to take out a classic bank loan.
