How to find the right investors/funding to start a business
What are my options for raising funds?
Desperation is like kryptonite for investors. Luckily, if you are diligent and are well prepared, you will feel more confident and ready to get the money you need! Skysthelimit.org has broken business funding into three main types: typical (or traditional), loans and investors.
Traditional: Personal Savings, Partnerships, Pre-Sales, Donations, Credit
The typical ways to fund your business like savings, personal credit, pre-sales, and/or capital partnerships can all help you get off the ground without ever having to take money from a third party. They are the old “DIY” version of funding your business. Even if you do end up needing to raise more money to grow your business, getting as far as you can on your own is beneficial for many reasons. You retain control, ownership, and you’re responsible only to yourself. As soon as you have someone else’s money, that whole dynamic changes.
Loans: Personal Loans, Crowdlending, Bank Lending
Loans are exactly that, money you borrow from someone else in the form of personal loans and bank loans. These forms of funding rely on three major concepts: risk assessment, leverage, and your ability to pay off a debt.
Investors: Friends & Family, Angels, Venture Capital, Crowdfunding
Crowdfunding can be a good way to pre-sell your products and get the capital to build them, but you may use a lot of the money on incentives to get people to sign up. In exchange for money from investors, you must give them a portion of ownership and control in your business. Sometimes friends or family members will provide loans. Angel investors are high-net-worth individuals who get an equity stake in return for their financing. Venture capitalists take equity in your business in exchange for financing.
How and I actually get funds?
Finding an investor is a full-time job. It takes a lot of work, a lot of conversations, and a lot of no’s. Luckily, if you are diligent and address everything we’ve discussed to this point, you will feel much more confident. You want to exude inevitability to those that hold the purse strings. You want them to feel as though you are going to make this business work whether they’re on the train or not. Better yet, you want them to feel that they might miss out on a great opportunity or to be a part of an incredible story. You need to invoke FOMO. This goes for every type of investor or lender.
How much do you need. Figure out exactly how much money you need and when you’ll need it by.
Prepare and have a business plan. This will help you demonstrate knowledge of your industry, be able to articulate the opportunity you’re going after, and highlight your competitive advantage. You should also have a firm grasp of what you plan to use the money for, and how this investment will impact your bottom line.
Check your credit. Your credit is an important indicator of your creditworthiness. Request a copy of your personal credit report and score. Contact the credit bureau to resolve any issues, and if your score is in the 600s or lower, take steps to improve it before you approach lenders.
Research different funding options. Take the time to learn about the all your options to ensure you’re working with the best partner and product to help grow your business. Here are some tips on what you can do to find sources of funding:
Run a quick internet search to find funding
Ask family and friends
Use your social networks, like LinkedIn
Know someone that has a contact that can help you? Ask for a referral
Prepare your investor pitch. The first step is to create a pitch deck. You will use your pitch deck as a brief presentation to provide investors with an overview of your business, to showcase our product or service, share your business model, explain your monetization strategy, and to introduce your team.
Before you start looking for funding, complete your business plan and include a well thought out and researched business timeline. This will help you more accurately estimate how much money you will need and when you will need it by.
TIP: Most of these resources require that you can find friends and/or family (or some early customers) to help you get this funding.
Through a partnership with Kiva, our entrepreneurs can get access to a special kind of interest-free & fee-free loan for business expenses up to $10,000. Click here to learn more and sign up.
Crowdfunding sites allow entrepreneurs to “pre-sell” their products or services (essentially, customers can give you money now in exchange for your products/services in a month or two later when you are ready). These sites are especially good for unique, product-based businesses. Check out IndieGoGo or Kickstarter.
If you know that your personal network of family and friends would just donate money to you to get your business started, check out GoFundMe.
Financing a business through a credit card is risky but can work for some people. If you have a great credit score, an established business and plan, and/or some collateral, you can try to get larger business loans (i.e. around $50,000 or more) from microlenders such as Working Solutions or VEDC.
Read “Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist” by Brad Feld. Get it on Amazon for $22 + shipping.