How data is fuelling a new approach to startup funding

Do you want to start a business?

You have a fantastic idea, the determination, and the assurance that you will succeed. But have you considered how much money or finance you’ll need to realise your dream?

Whether the startup is a small business or a giant corporation, all companies require funds to get started. Raising sufficient finances is essential for getting a small business off the ground and ensuring its long-term viability and success.

In this piece, we will look at a few traditional approaches to funding and then how things are changing thanks to data.

Why Your Business Needs Funding

A company’s ability to get off the ground depends on funding.

It’s not easy getting a new business off the ground, and it’s even more challenging to keep it moving in the right direction. Having the necessary funds enables your business to expand and progress.

While funding your business yourself is beneficial, you can also seek outside funding for working capital in the form of investors.

Let’s delve into why you might need to raise money:

• Plan for the unplanned
• Cash flow not flowing
• Powerful product development
• You’re growing

There are numerous reasons why you should seek investment for your company. But the main reason is to help you build and scale your business quicker.

Traditional Approaches To Funding

Finding capital for a startup business can be a time-consuming and challenging process. It helps to start with knowing what options are available.

Let’s take a look at some traditional approaches to funding.

Self-Financing Your Startup

Several startups rely on self-financing or personal investment as their primary source of capital. Many first-time entrepreneurs aim to postpone getting a business loan until a later phase in their business journey once theyre more stabilised. This is a good route to go, as lenders will be more willing to give you a loan as theyll consider the stability of your business as low-risk.

Crowdfunding Support

Crowdfunding is a method of raising funds from a large number of people via social media sites and web-based platforms, primarily for business purposes.

Loans From Banks

Banks are often the preferred method of obtaining funds for startup businesses as they are more dependable and convenient.

Term loans and working capital loans are two types of loans that banks offer to new businesses. The interest rate, loan amount, and repayment period offered by each bank will differ.

Business Credit Cards

Since the growth of startup businesses in recent years, using credit cards for commercial reasons has increased.

If your business does not require huge sums of money in the early stages, you can use credit cards for transactions. Just make sure to clear the balance on time to prevent debt or additional interest rates paid in the form of penalties.

Peer-to-Peer Lending

Peer-to-peer lending is a sort of money lending in which there are no middlemen involved in the transaction. Lenders give money to borrowers as an investment, while borrowers receive funds to invest in their new business.

In this method, lenders might profit from borrowers since the interest rate given is higher than that supplied by banks.

Venture Capital and Angel Investors

High-growth businesses or organisations with good cash flow are the best candidates for venture capital and angel investing.

Nonetheless, each investor has a niche in terms of geography, sector, and business age. You’ll need a unique idea and a great business plan to attract their funding.

Heres A Unique Approach To Funding

Entrepreneurs will be excited to know that there is a new, unique approach to funding, which will potentially benefit them more than traditional approaches.

There’s a one-of-a-kind funding model that depends on revenue-based financing to allow business owners to raise growth capital without having to put up any equity or pay interest.

This clear financing option removes the disappointment and surprises that come with hidden fees. And, in addition to no hidden fees or interest charges, the rate of interest is also 0%! Uncapped offers this type of funding model and makes its money by charging a flat fee of 6%.

The advance is repaid through a revenue-sharing arrangement. And the company requesting cash advances is evaluated based on present and future revenues, sales, accounting, and marketing data.

How An API Is Used To Gather Data For Funding Purposes

Application Programming Interface (API) is a set of definitions and protocols for developing and integrating software applications. In this funding model, APIs connect with an eCommerce seller’s store and analytics accounts.

The information pulled via the API is used to determine how well the store is doing and how well it will perform if it takes out a loan.

From there, it’s more or less a ‘royalty’ model, in which Uncapped takes a share of every X amount of profit made based on the loan. For example, if you invest the loan in Facebook ads, Uncapped takes a percentage of the sales generated from the ads.

This model relies on repeatable processes in your business, like your marketing, that businesses dont want to give away equity to receive the funding to do. It relies on data to understand and forecast opportunities that the more traditional approaches haven’t had access to.

So, in the case of getting funding to run Facebook ads:

The lender uses data to forecast the profit return on the ads, and the company gets access to funding to run the ads without giving up precious equity.

The data-fueled funding model was created so that entrepreneurs can obtain funds without incurring interest or dilution, allowing them to focus on execution rather than fundraising.

Conclusion

Additional funding is one of the best ways to grow your company quickly. But, getting funding doesnt always have to mean dilution or large amounts of interest. As a startup founder, you want to hold onto as much control of your business as you can.

Its time to rethink funding and take advantage of the benefits that data brings to the table.