OPPORTUNITIES FOR ATTRACTING ALTERNATIVE FUNDING SOURCES TO STARTUPS

Abstract

Startups are generally considered newly established, young, promising companies with high growth potential, characterised by innovativeness, technological attractiveness, and uniqueness. However, small startups are often faced with a lack of financing, the main reasons being insufficient collateral, high costs, high risks for the financier, and information asymmetry (AFI, 2020). As startups are mostly focused on the development and production of products directly related to innovation and technological development, attracting sufficient funding is vital for the development and continuity of such businesses. According to Ive (2015), adequate funding helps to create a strategic advantage by enabling a product to enter the market quickly, grow, and further penetrate other markets. Many factors contribute to attracting the right financing. To convince investors to invest in young companies, startups need to be attractive, adequately convey the business idea and growth potential, provide a clear business model, and development strategy, and highlight other strengths of the company and other issues that are important for business success.

Failure to attract sufficient funding in time can lead to failure in implementing business ideas. The market today offers a wide range of traditional and alternative sources of finance. However, for startups seeking to bring unique products to market with both high growth potential and high business risk, not all sources of finance are available and effective. Assessing the financing options for startups can only be achieved by analysing the business financing instruments available on the market and identifying the startup-specific factors that influence the attraction of finance.

The object of the study is alternative sources of funding for startups.

The study aims to analyse alternative funding sources for startups by defining the concept of a startup and identifying the key characteristics of startups.

Objectives of the study:

1. Define the concept of startup and identify its essential characteristics.
2. Identify the factors influencing the attraction of funding sources to startups.
3. Analyse alternative funding sources for startups.

Research methods: analysis of scientific literature, content analysis of the document, analysis of statistical data, comparison, summarisation, and graphical representation.

The analysis of scientific papers and statistical data has shown that the product offered by a startup company must be not only distinctive and innovative but also useful, recognised, and valued by the consumer, otherwise it would be difficult for the start-up to create a competitive advantage. To penetrate the market, a start-up goes through a series of stages from idea generation, implementation, growth, and maturity, to exit or other business transformation.

A professional, creative, and efficient team, able to clearly outline the vision and strategy of the company and develop a clear business idea, is one of the most important factors in ensuring not only the success of the business but also the right business funding. To attract funding for start-up and expansion, startups need to gain the trust of investors, which can only be done with a detailed business plan and model, with possible alternatives in case of failure, with effective marketing, and with the use of modern means of communication.

There are many different sources of business finance in the economy, but not all of them are attractive to companies because of their availability at different stages of the business. In the early stages of a business, business founders primarily use their funds, those of family and friends. As startups, due to their inherent high risk, high growth potential, and other unique characteristics, also usually require significant capital at the early stage, the most attractive.