Finance : Having a big, billion-dollar idea for a new company or start-up is great—but now what? You probably need a website, a tech team, some office space, and, of course, at least enough cash coming in each month to pay your rent.
Which means, you need money. Whether it’s a cool new app or a swanky café, most businesses and most entrepreneurs require at least a little bit of funding to really get off the ground in their early days. If you have a tech-based idea, you may have an easier time attracting attention from venture capitalists or angel investors, but as more companies work that angle, finding an investor is harder than ever. So how can you get your business off the ground?
Here’s an overview of some typical sources of financing for start-ups:
Begin With Bootstrapping
When first getting started, many entrepreneurs use “bootstrapping,” which means financing your company by scraping together any personal funds you can find. This typically includes your savings account, credit cards, and any home equity lines you may have.
In many cases, using the money you have instead of borrowing or raising is a great approach—in fact, some entrepreneurs continue to bootstrap until their business is profitable. This can be beneficial because it means you won’t have extensive loans and monthly payments that bog you down, especially if you run into snags along the way.
But, if you’re looking to scale your business quickly, it can be advantageous to bring in outside sources of funding. So, what happens when your funds run out, or you decide you need something more? That will ultimately depend on the type of business you’re building, but there are some common places to start.
Keep Your Day Job
This is the suggestion no one likes. If you currently have a job that is meeting your expenses and letting you live a relatively comfortable lifestyle, don’t be in such a hurry to quit your job and follow your business dreams. Spend some time getting the business off the ground and building through the early, difficult phases with the solidity of your 9-5 job paying your bills.
This lets you build your business with fewer compromises, and lets you stay true to your vision without needing to give in to financial pressure. You can also get a great experience from your day job to help you run your company down the road.
Consider Friends and Family
Asking your friends and family for money might seem like a daunting prospect—but tapping those closest to you is often a good first step before getting external funding. And hey, it can never hurt to ask. While Aunt Irene is probably not in a position to finance your entire new social network for dog owners, she may be impressed enough to toss you a couple grand to help you get rolling (and join the site to find Fido some new playmates).
Before you ask your friends and family for money, though, you should have a business plan at the ready. This way, you can explain to them exactly what you’re selling, what you plan on charging, how you’ll make money, and whether you’re asking for a loan, an investment, or a gift (i.e., whether or not they should expect to get back any money they put into your business, and if so, how much).
Look for Angels
Angels are generally wealthy individuals or retired company executives who invest directly in small firms owned by others. They are often leaders in their own field who not only contribute their experience and network of contacts but also their technical and/or management knowledge. Angels tend to finance the early stages of the business with investments in the order of $25,000 to $100,000. Institutional venture capitalists prefer larger investments, in the order of $1,000,000.
In exchange for risking their money, they reserve the right to supervise the company’s management practices. In concrete terms, this often involves a seat on the board of directors and an assurance of transparency.
Incubator or Accelerator
Business accelerators and incubators have sprung up all across the country, particularly near colleges with a strong business program. These spaces are part communal workspace and part mentorship development centers. Young businesses can get a great start here while partnering with some amazing people.
The downside? They are often focused on tech-heavy businesses, so you might struggle to find one that works for your company.
If you have a sexy idea and you’re great at social media, crowdfunding might be an option. When websites like Kickstarter and Indiegogo first started, there were a number of businesses that had great success pulling together funding through their reach.
The downside? Lots of companies aim for crowdfunding, so you have to generate a lot of buzz to make it through the overall signal noise. It’s also very possible to overextend yourself and frustrate backers, which can lead to a great deal of animosity before your company is even really off the ground.
Finding funding can be the hardest part of getting your business off the ground, but also the most rewarding. Once you’ve saved, gotten approved for a loan, or found other people to invest in your business, you can get back to—or start—your dream job! Though it can be a long road to success, finding allies along the way (whether they’re friends, angel investors, or venture capitalists) to help keep your business afloat can make all the difference in the world. Good luck!