7 Practical ways to raise money for your new startup
With the constant spotlight and frenzy surrounding startups that raise funding, it sometimes feels like that’s the only way to finance your path to success. Avoiding outside investment can be smart on at least a couple of levels. Not only does bootstrapping a company allow you to grow at your own pace, you also don’t have to be a slave to terms set by investors.
The truth is, most small startups piece together their funding from several different sources phased out over time. No single source of funding is necessarily easier to come by than another. It depends on your business model, projections, and how well you can sell yourself to potential financial partners. Whether you are a start-up seeking initial seed capital or an operating small business looking for money to grow, you have to be flexible, remain positive, and stay vigilant in your efforts.
Here are five ways to get started with funding your startup:
1. Do it yourself
Most entrepreneurs and small business owners these days have come to the realization that they will have to self-fund (also know as “boot-strapping”) their projects for a significant amount of time until more formal funding opportunities become realistic. There are many ways to accomplish this from savings accounts and zero interest credit cards to leveraging other personal assets. If you believe in your vision and have an absolute refusal to accept failure as an option, you should feel comfortable investing you own money into the business. In turn, this will make potential investors more comfortable knowing you have skin in the game. Just keep your eye on profitability!
2. Friends, family, and fools
Funding from friends and family is a very popular and effective way to round up some initial capital for a business. Those closest to you are more likely than anyone to believe not only in your vision, but your ability to make that vision a reality. One downside of course is that you are potentially risking personal relationships should the business fail and your agreement not be structured properly. To avoid friends and family feeling like “fools” it is recommended to structure this type of funding as a high interest loan for one year. Borrow just enough to launch the business into operations, build your website, or develop some additional pitch material if you want to go after big money. And as much as you will want to avoid racking up legal fees, it is imperative that all parties get sound legal advice. Not doing so can potentially cost you much more down the road.
3. Small business loans
4. Angel investors
This path is close and startups can achieve enormous success in raising money this way. That being said, much of it has to do with timing and leveraging the right contacts. As per experience the “friends and family” route has actually opened the doors to angel investment rounds. A large amount of trust can be built by giving your early stage investor his or her money back plus interest. But just because someone lent you money to launch your business, doesn’t make them the right financial partner for the long run. When raising money from angels or VC’s you have to keep in mind that they will own a piece of the business and you then have a fiduciary responsibility to act in the best interests of the business and its shareholders. Attracting angel investors is a tricky business, and no matter how exciting and positive the initial conversations may be, the devil is always in the details. Know your business plan, be transparent, back up your valuation with real projections (forget the BS hockey stick revenue models), and build a relationship based on trust.
5. Use Your Own Assets
Until your business can begin buying its own equipment, keep track of personal belongings brought into the establishment. This can help you get started sooner without upfront purchases. Once your business begins to stabilize, start replacing your personal possessions with equipment that the business will own.
6. Budget Savings
Set aside a small percentage of your current paycheck into an account strictly for your business startup capital. Before you pay any bills or purchase any goods, stick anywhere from five to ten percent of your check into the account. If you can’t live on what’s remaining, figure out how you can reduce your living expenses.
7. Crowdsource Funding
A growing method of generating cash for a business idea is through online crowdsource funding websites. Many people have generated a great deal of cash for their ideas through these organizations.
Unlike investors, this money is usually in the form of donations while you offer a small token of appreciation for people’s help. Many business owners hand out things such as shirts or other products related to the company itself.