Your dream for a successful business may be fully realized in your mind’s eye, but it takes a great deal of time, effort, and money to make it work in real life. While the time and effort are within your control, the money factor can be tricky. Where can you find the funds necessary to support your business in its early years? If you need inspiration, these common sources of capital may be able to carry your business through its next few stages of growth.
1) Play to the crowd.
Think you can attract a wide audience of potential customers and get them interested in your project? You might consider a particular type of crowdfunding. It’s called donation crowdfunding, as seen on sites like Kickstarter, and it allows backers to make donations in exchange for perks—for example, limited-edition items or early access to your software program. When done correctly, crowdfunding doubles as a marketing tool and provides a source of feedback from your potential customers.
2) Find your guardian angel.
High net worth individuals who use their personal funds to invest in new projects are often called “angel investors” or “angels”. Angels often gravitate toward projects that pique their personal interest, but the potential for significant profit must be there. Angel investors normally fund startup businesses in their early stages. Because early stage investments are so risky, you’ll have to prove yourselves as a strong team with the potential to deliver a sizable return on investment. While you’ll need to give up an ownership stake to accept an angel’s help, you can also benefit from their advice, experience, and networking capabilities.
3) Get the family jewels.
The most common source of startup funding for entrepreneurs is friends and family. While your friends and family may not at first seem like a good choice when it comes to raising capital, this route has a relatively clear set of pros and cons. On the one hand, your friends and family typically know you better than other potential investors, so they may be more inclined to trust you and give you more favorable terms. On the other hand, it may feel awkward to ask them for money. They may feel pressured to help you, or lack an understanding of your business and its inherent risks. If you choose this option, make sure your friends and family are educated on the risks before they make a commitment, and that the terms of the transaction are accurately documented in writing.
4) Pull yourself up by the bootstraps.
The term “bootstrapping” in business means funding business operations without external help or capital. Bootstrapping is risky business, but it has one main advantage: rather than answering to investors and banks, you must only report to yourself. It means operating with the resources you already have and/or cash flow generated by the business, along with some ingenuity and elbow grease. Bootstrapping your business will involve making the most out of every dollar you spend and every dollar you make—even if it means subsisting on instant noodles for a while. If you’re smart with your money, marketing, and time management, you’ll be able to minimize or eliminate outside investment and debt.
5) Venture forth.
Venture capital (“VC”) firms have more money to spend compared to an angel investor, but they also demand a greater ownership stake and certain control/decision making powers in exchange. Before approaching a VC, you’ll want to build your network, conduct and validate your market research, solicit feedback from a diverse range of voices in your network, and craft an impeccable pitch. Because this type of capital can be very difficult to land for new businesses, you should only approach a VC firm if you have complete confidence in your ability to produce. If you know you can deliver a solid return on their investment, you might pursue this path in exchange for a substantial sum.
While these are some of the most common and effective sources of capital, every business is different. Each venture should develop a unique strategy to address its capital needs. Contact The Law Office of Chris Clark, PLLC to speak with an experienced attorney who can offer tailor-made solutions based on your needs, your financial circumstances, and your ultimate goals. We would be happy to help you explore your options and pave the way to a booming business.
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