How to Launch a Business – Part 2, Raising Money
How do you raise the money for your new idea?
Do you dig deep into your own pockets? How do you tactfully ask for help from family and friends? Where do you find angel investors? What are venture capitalists and how do you approach them for the really big bucks?
In this second article of a four-part series on how to launch a business, we’ll share some suggestions on how to get money without bankrupting yourself and your family:
1) Create a one-page summary – Whatever amount you need, start with a business summary listing your company name, website URL, contact information, key personnel, unique service offering, target market, as well as a financing snapshot with your funding stage, capital needs, monthly burn rate, and the amount of money you’re seeking. This is an essential item, so invest the time to make it right or hire a marketing consultant to guide you.
2) Bootstrap it – If your idea is simple enough and the amount of cash you need is manageable, you can fund it yourself with your existing business checking or savings account. But be realistic about how much of your own funds you invest vs. the short- and long-term payoffs.
3) Contact family and friends – Facebook supposedly launched with a $1,000 investment from the founder’s best friend at Harvard, followed by $18,000 a few months later. If you do ask your friends and family to invest, provide them with an investor’s letter outlining the terms of their contribution, offer to pay them interest, and enable them to opt-out at any time if they get cold feet. Be candid about their risk in today’s competitive environment and recovery economy.
4) Charge ahead – Wise or not, many businesses have funded themselves by credit card cash advances. However, be wary of getting too much cash and then paying it back along with the big interest payments. Be aware of your FICO score before charging too much -- this strategy is particularly dangerous.
5) Visit your bank – If your credit is good and you have a successful track record of profitability at your current bank, talk to them about a business line of credit or loan. The rates are quite low right now. Also check out this post on SBA financing options.
6) Seek angel investors – Angels are wealthy individuals who provide capital for start-ups, usually in exchange for convertible debt or equity ownership. PricewaterhouseCoopers says that the average amount of capital raised by a business from angels in 2007 was $450,000, but angels funded more than 10 times as many companies as the larger venture capital firms.
7) Think big to pitch venture capitalists – According to Inc. Magazine, VCs only invested in 4,500 companies during 2009. So unless you know someone at the top or your company is generating tons of publicity, it may be difficult to get an audience with a VC firm. Though these investors often fuel start-ups with $1 million to $2 million or more, be aware they often seek to take a majority equity position of the company’s future earnings.
8) Network with the right people – Attend start-up conferences, technology events, genius workshops, and venture capital contests. At all of these, you can pitch your idea to various people to see who’s interested in investing. Or if you have other skills beyond creativity, find an idea you can invest in and partner with someone to launch it.