The startup world is one of the most interesting around. It’s full of exciting stories, dramatic failures, and in recent years, it has exploded into the mainstream. The rise of online businesses has undoubtedly played a key role in this growth, making startups more relatable to the Average Joe who may have always dreamed of launching a business. At the heart of many of these success stories is startup funding, which provides the crucial financial support that transforms ideas into scalable ventures.
However, in and amongst the success and horror stories are some dubious myths. This is an area of business where a lot of inaccurate information is published, and through the course of this guide we will look at some of the biggest misconceptions that arise from one of the most important areas of startups: funding.
Myth #1 – You only need $100 to start
If you delve through the archives you will be sure to find some stories of people in business who claimed to have $100 in their bank account, and went on to make a multi-million dollar establishment. Can it happen? Sure. Does it happen regularly? Not at all.
It would be fair to say that starting a business has become easier than ever before. The fact that some initial costs that were historically large, like EMV terminals, have crashed down in price means that some early obstacles no longer exist. However, at least some capital is needed, whether this is for product development or marketing to get the product out there. Very few businesses will start with the stereotypical $100.
Myth #2 – When you do need finance, it’s a bank loan or nothing
This is actually rarely the case nowadays. Startups are lacking collateral, and this is one of the key ingredients that banks look out for. As such, if a startup does go down the bank lending route, the only way they are likely to receive this is through a personal loan. Suffice to say, a lot of startups don’t want to take such a risk to their personal property.
The situation has turned somewhat recently thanks to crowdfunding as well. Some startups will give away equity, or a product, in a return from funding from “the community”. It again means that banks are often redundant during the funding process.
Myth 3 – With a business plan, any funding is possible
Another misconception is that anything is possible courtesy of a business plan. To suggest that this is a golden ticket is a complete misconception though. While banks can look at them favorably, other sources of finance don’t believe in them and will never turn to them.
Bearing this in mind, placing all of your eggs in this basket is not a guarantee that you are going to net that elusive funding. Particularly in the modern-day crowdfunding world, this is something that is becoming less used (although for your own benefits, funding aside, they can still be a useful document to have). As such, don’t put one together and think that a magic wad of notes is going to come your way.
Frequently Asked Questions (FAQs) About Startup Funding Myths
1. Can I really start a successful business with just $100?
While there are rare stories of entrepreneurs starting with only $100 and building multi-million dollar companies, this is not the norm. Most businesses require more capital for essentials like product development and marketing, even though some startup costs have decreased over time.
2. Is a bank loan the only way for startups to get funding?
No, bank loans are no longer the sole option for startup funding. Many startups now turn to alternatives like crowdfunding, where they can raise money from the community in exchange for equity or products, making banks less central in the funding process.
3. Will having a business plan guarantee I get funding?
A business plan is not a guarantee for securing funding. While banks may consider business plans, many modern funding sources, such as crowdfunding platforms, do not rely on them. A business plan can be useful for your own planning, but it is not a magic ticket to investment.
4. Has starting a business become easier in recent years?
Yes, starting a business has become easier due to reduced costs for certain essentials and the rise of online business models. However, some level of initial capital is still typically required to cover necessary expenses.
5. Are crowdfunding and alternative funding methods reliable for startups?
Crowdfunding and other alternative funding methods have become increasingly popular and accessible for startups. While not guaranteed, they offer viable options beyond traditional bank loans, especially for businesses that lack collateral.
