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A startup in FinTech demands much more than just a great idea. It requires time, discipline, dedication and most importantly, funding. Without funding, the vast majority of startups fail to scale and get their product made.
FinTech, otherwise referred to as financial technology, is one of the fastest-growing sectors that has attracted a lot of attention and investors in recent years. That is perhaps because cash is quickly turning digital.
The business landscape has transformed, and with it, startup funding has surged. As a FinTech founder, you must evaluate where your startup stands in the competition and how much funding you can raise to get your company off the ground.
The importance of funding and fundraising for FinTech startups
Funding provides FinTech startups and all startups, the fuel they need to grow and expand your business and this way reach the highest income levels and sales rate.
Technology offers great solutions, but this comes with a cost. Hiring technical developers and a technical team is rather costly. Purchasing all the hardware and equipment needed, hosting services, app development, and many other areas require more and more money and this adds to the costs of building the business.
How to get a trust fund for your Fintech?
The greatest challenge for FinTech startups, just like in most other businesses, is the source of funding. Even though getting financing for your Fintech startup may be difficult, it is not entirely out of reach.
Here we come up with 5 ideas of how you can get funding for your startup in FinTech.
5 ways to get fintech funding
1. A personal loan
If you are planning to start a FinTech company and are still in employment, you may opt to go for a personal loan as your funding source for your FinTech startup. But most lenders will require you to provide your current paystub as proof of income.
The good thing is that pay stubs can be easily obtained from your employer or using an online pay stub maker solution. If you choose the last one, be sure to have them signed by the company depicted on the stub before using them as legal documents.
2. Angel investors
Getting funding from angel investors for your startup is one of the most profitable funding options for FinTech startups.
If you believe you have a brilliant FinTech investment idea, angel investors can also be a suitable funding option. Angel investors, otherwise referred to as private investors, refer to high-net-worth individuals who provide financial aid to startups with brilliant ideas in exchange for equity.
The most significant advantage of this business financing option is that there is less risk involved than loans because the funds injected into the business by the angel are not to be repaid.
However, this option is not without drawbacks. For example, you may not have complete business control because the angel will have a stake in the venture.
3. Venture capital
Getting VC funding for your tech startup is always on the list of FinTech startups when it comes to getting funds.
Venture capital is a form of private equity and financing provided to startups and small businesses that investors believe have long-term potential in terms of growth. In most cases, venture capital is accessed from financial institutions, investment banks, or some well-off investors.
This source of funding is not always monetary. Sometimes it can be provided in expertise and technical support that helps startups with a potential move to the next level.
Many Venture Capital firms are interested in investing in tech startups due to the open opportunities and wide potentials technology-enabled solutions bring to the table. So getting VC funding for your FinTech startup is a great funding option if you can find and approach the right VC the right way.
The main disadvantage with this funding option is that the investors will get equity in the business, meaning that you will not have total control over your business. Nonetheless, it is an excellent option for companies with a short operational history or those that can’t access funds from traditional financial institutions.
Crowdfunding has become very popular as a means of raising funds for startups in recent years.
All you have to do is post a brilliant idea on a crowdfunding platform indicating your business goal, profit-making plans, and the level of funding you need. If funders like what you share, they can make contributions in return for equity or other rewards that can include discounts once your business idea is actualized.
Getting crowdfunding for your fintech startup has shown its benefits for raising money and pitching finding angel investors for many tech startups.
Crowdfunding increases your chances of online investment opportunities and finding the right angel investors for your tech startup as well as it helps in promoting your product/service and acts as a little marketing campaign. Crowdfunding your tech startup is also an absolutely powerful funding option for tech startup that are looking for growing and expansion and to secure capital quickly and effectively.
5. Incubators and Accelerators
Getting funding and raising capital from incubators and accelerators is one of the greatest funding options especially for early-stage tech startups.
Getting funding from incubators and accelerators will give you access to many new markets, introduce, and connect you with wide network of angel investors and VCs Incubators and accelerators do not usually only offer funding but they can also be offering support and other services that will help your business in many ways.
And if this is not enough, here are some alternative sources of funding:
A. Corporate venturing – where large corporations invest directly into a smaller company with a new technology often in the same sector.
Corporate venture capital is invested in a very similar manner to a series A investment, but the corporate venturer will want the company to have a strategic fit to its business, unlike a VC which only looks for a financial return on its investment.
Many of the large global financial institutions, such as retail and investment banks, insurance companies and pension providers, have corporate venture funds ready to deploy into FinTech startups and will often invest alongside traditional venture capitalists.
B. Equity crowdfunding – the global equity crowdfunding industry has been growing and it’s expected to overtake angel investing and venture capital in terms of size.
Equity crowdfunding is suited to early-stage companies. It involves investors providing capital to an early-stage company in exchange for shares, with the expectation of profit if/when the business becomes successful.
A main benefit of equity crowdfunding for entrepreneurs is the ability to draw upon the knowledge, expertise and networks of a larger crowd of investors.
C. Venture debt – specialist providers of debt to technology companies that carries an equity element entitling the provider to purchase shares in the company.
Venture debt providers will invest into a company that is not yet profitable and to which more traditional sources of debt financing are not yet available.
The terms of the venture debt are typically more expensive than traditional debt financing.
D. Government grants or tax credits – grants or guaranteed loans from government funded or not-for-profit organizations (such as regional development agencies) may be available.
In addition, tax credits such as for research and development can be available to companies. Grants and tax credits are neither dilutive to the shareholders nor repayable, and so they are an excellent source of funding to companies, especially in the early pre-profit stages of a company’s lifecycle.
Different stages of Startup Funding
Every startup, irrespective of the nature and size of operations, requires funds to convert its innovative ideas into reality. Most of the businesses generally fail because of their inability to raise sufficient funds. After all, you need some money or capital to keep your business going at every stage. If you’re new to the world of startups and have no idea about raising funds, then you need to make yourself familiar with these different stages first.
An entrepreneur should ascertain how much amount he/she can contribute from his/her own pockets. Assess all of your investments and savings kept in multiple accounts, and approach your friends and family.
This stage involves fewer complexities and documentation, and even your friends and family maybe ready to lend at a cheaper rate. Self-funding or bootstrapping is apt if your startup requires a little investment earlier.
Seed-capital is an investment made at the preliminary stage of the startup. This helps the business in identifying and creating a perfect direction for their startup.
Funds raised at this stage are used for knowing the customers’ demands, preferences and tastes, and then formulating a product or service accordingly.
Most of the budding entrepreneurs raise this capital from friends, mentors, and family, while some take up loans in exchange for common stock.
When the company’s final products or services reach the market, venture capital funding comes into the picture. Regardless of the products’ profitability, every business considers using this stage that further involves multiple rounds of funding:
- Series A
Series A investment, being the very first round of funding, doesn’t ask for external funding. At this stage, startups have formulated a specific plan for their product or service. It is mostly used for marketing and improving your brand credibility, tapping new markets and helping the business grow.
- Series B
When a business relies on Series B investment, it portrays that the product is marketed right, and the customers are actually buying the product or service, as decided earlier. Such funding helps a business in paying salaries, hiring more staff, improving the infrastructure and establishing it as a global player.
- Series C
A startup can receive as many rounds of investment as possible, there is no certain restriction on it. However, during Series C investment, the owners, as well as the investors, are pretty cautious about funding this round. The more the investment rounds, the more release of the business’ equity.
If you are launching a startup in FinTech and you are wondering how can you get the funds, think no more and get your idea real!
Without funding, your brilliant business idea may remain just that – an idea. The good thing is that there are so many business funding options available to help your FinTech startup enter the market with a bang.If you have any questions or would like to know more, please contact us. We will be delighted to help!