Funding models that best suit your business

Q.: How do I raise capital to start a new business? I had some savings, but I used the funds to try to get a separate venture going. Unfortunately, it failed. What should I do going forward?

- Washington Odhiambo

Most start-ups fail within the first 18 months of launching - about 80 per cent, according to some accounts - and so many entrepreneurs burn through their savings trying to keep their businesses afloat. My own first venture, selling Christmas trees, failed when I was still in grade school, after rabbits ate nearly all of our seedlings. So you’re in good company!

It used to be that entrepreneurs with cash-flow problems had no option but to ask their local bank manager for help. In recent years our fellow entrepreneurs have been thinking of ways to expand our options, and now start-ups have more funding choices than ever before.

Crowdfunding, a disruptive innovation that is changing entrepreneurship, has shifted the balance of power away from traditional banks and into the hands of the people who matter most: the customers.

Take IndieGoGo, for instance, which uses the reward-based crowdfunding model. As an entrepreneur, you can make a video about your idea and post it to IndieGoGo’s site. People who like your idea will donate money because they want to make it a reality. In return, you reward donors for their contributions, usually by sending them a sample of your product or offering access to your service once it is ready.

Another option is equity-based crowdfunding: instead of getting a product sample in exchange for donating, investors get a percentage of your business. This means that buy-in is typically a lot higher. Entrepreneurs usually raise more cash through this method than the rewards-based model, but when the round of fundraising is complete, they own less of their business.

Due to its focused nature, online crowdfunding works best when it targets a specific community or subculture. So ask yourself: Does your idea appeal to a certain community? If so, then pitch your product to those people. And when they give you cash to create your business, you’ve demonstrated that there’s a market for your product.

GRANTS

It may also be useful to look into whether there are any grants available to you, which governments sometimes give in industries they are trying to support or grow. In Britain, for instance, hundreds of grants are available to tech- or innovation-focused enterprises.

Ask yourself: Is there a particular issue that your government is desperate to solve? Does your idea help to tackle that problem? If so, you should research this option further.

Sometimes a mix of government support and rewards-based crowdfunding is the best way to go. For example, the StartUp Loans Company, of which Virgin StartUp is a delivery partner, invites entrepreneurs in the U.K. to apply for startup loans ranging from £500 (about $800 to £25,000 (about $39,000).

This program is designed to support start-ups that have been in business for less than two years. In the past 18 months, Virgin StartUp has funded more than 600 businesses this way.

If you need a larger sum, you may need to find an angel investor. You can locate angel investors at networking meetups, industry events, or through websites like AngelsDen.com - an online community of angel investors.

SEED MONEY
For industry-changing ideas that require seed money in the millions of dollars, you can look to a venture capital fund. Created solely to invest in businesses, VCs aim to make huge returns on their investment.

If you get on their radar and they like your idea, they will invest heavily and become major stakeholders in your business. They will want to have a say in how the business is run.

Here’s my advice: Rather than put all your eggs in one basket, it might be best to mix options. Start off by validating your idea on a rewards-based crowdfunding site, and raise a small amount of money by marketing your product or service to a targeted group of customers. Once you’ve established a customer base, you’re more likely to draw the attention of an angel investor or VC.

Whatever route you choose, one thing’s certain: The financing landscape has changed for the better since I borrowed £300 (about $470) from my mother, Eve, decades ago to set up the business that spawned Virgin!

This column is part of a weekly series by Richard Branson in which he responds to reader’s questions from around the world. Send questions to RichardBranson@nytimes.