So you’ve got your business plan in hand and you realize you have no idea what to do next.
The first thing you need to do is figure out how much money you need and then we can point you in the right direction. We are going to go over the pro’s and con’s of each of these choices.
It can be crazy when you first step out of the door with your hand out for money, but as long as you’ve put in the work and have a solid business plan to back up your belief in your company, you will be fine.
The question is where do you go for money and how do you get it, and that’s exactly what this book is about.
Finding funding is like shopping for a car, unless you know how much you have to spend and what kind of specific car you’re looking for you’re going to go crazy flipping through thousands of cars that aren’t right for you.
Let us help narrow down your search and get you into the right vehicle today.
These options are good if you need a small amount of cash fairly quickly, and don’t want to deal with mind numbing meetings. These are great for startups that don’t have any sales to back up their expectations.
If you need some quick capital, but you don’t want to give up a percentage of your company (and soul), or have to deal with interest rates, then here are some viable options for you.
If you’ve already visited these options or exhausted them and want to know how to go about loans, angel investors and venture capitalists then jump ahead to Loans and More.
This is the first choice for anyone that is starting out and while you don’t need a business plan to invest your own money, it’s the first step for any startup or small business.
This is the best option for when you first start out, as your company won’t be worth much right out the gate and you don’t want to give away percentages of your company until you have to and only once you can get real money for them.
You don’t have to worry about where your initial funding is coming from. You can skip the meetings and dive right into your business plan. This gives you the ability to quickly build momentum and start building up your business right away.
This also gives you the absolute freedom on what to spend your money and resources on.
That being said you still want to be careful in how you spend this initial investment on yourself, because if you burn through this money too quickly you could risk losing it all.
If the only money that you have invested in is your own then essentially the only help you have is your own.
You also are going to have to be very lean on your spending, which means not buying a $4,000 laptop when a $400 will do just fine.
That’s why I suggest this as the best way to start quickly, but you need to immediately look for more funding so that your company doesn’t bottom out. Time to visit your parents.
Friends and family
Once you burn through your initial savings or you decide you need more money, an option is to pitch to friends and family that might be potential lenders.
This is not just your immediate family and friends, try and wrack your brains for every known contact that you think might even remotely be interested in investing in your company.
The benefits are that you most likely already know their interest in your company, and what they can financially afford to loan you.
This offers you the chance to gain access to low interest or no interest loans.
Now there are a lot of risks involved with this kind of funding. If things don’t go the way you planned not only do you risk your financial future you also risk there’s. Make sure they understand the risks and that they don’t invest more money then they can afford to lose.
We all want to be successful, but you don’t want to do that at the cost of your family and friends. Choosing money over friendship or family is sure to tank both further down the line.
If you don’t have money on hand and you can’t get anyone you know to open their wallet, then this is a great option.
Crowdfunding platforms are huge now and they offer you the ability to pitch to people that are looking for opportunities to invest. These types of sites vary in what they offer and what the expectations are.
There are certain times when crowdsourcing is the best bet and during the coronavirus it’s become an even more viable option.
The pros and cons of crowdsourcing sites depend on the site you pick. We go over the top two choices for startups and small businesses in the resource section. That being said here’s a list of the common similarities between all platforms.
With crowdsourcing you have the ability to reach a much bigger audience than you would with traditional investment options.
It’s a hell of a lot faster than waiting to be approved for a loan, and way less time consuming.
You also now have access to all sorts of new contacts. The great thing about it is that most people that are investing in this business venture may also continue to invest in you, this is especially important if you are going to need multiple rounds of investment.
Once someone puts money towards a business or project they become invested in that opportunity. Not everyone on a crowdfunding site has serious connections, but they can become a brand ambassador.
This means that they can help you reach a wider audience then you could have before. Say one of your potential investors believes deeply in your business and happened to have an Instagram following of over a million followers.
The point is that the more people you have supporting you the better. Just don’t get too comfortable because people come and go everyday and if you rely on people too much you’re going to fall hard onto your face.
Depending on which platform you use these can change slightly, but here’s the issues that carry across all crowdsourcing sites.
You lose your ability to operate confidentially. You don’t know who’s on the other side of all of those computer screens, and while most want to invest in a company, some have more devious intentions.
You need to be wary of your competition, because once the cat is out of the bag, you’ve lost a cat and a bag. You don’t want to give your competition a huge leg up on you before you even get funding.
Imagine having this great idea and you’ve already started branding but you’re waiting for funding before registering your domain name and then bam!, someone swoops in and buys it in order to hinder you or even leverage it for money.
Not everyone has your best interest at hand and the anonymity of the internet makes it 10 times harder to know who you can trust.
What about the ones that do have your best interest in hands? Can you rely on these investors?
The truth is no, not always. While they may believe in you and what you’re doing, they also may have almost no knowledge of your business and what you’re doing.
You want to make sure you’re listening to the people who support you, but you also don’t want to have to wade through a sewer pipe to find one gold nugget.
The main thing you have to realise is that when it comes to running a business partnership, money is only one half of what you’re getting. The other half is about resources and connections.
If you walked into a meeting with potential investors and they were sitting there in their underwear with cheeto crumbs in their beard you would probably turn around and walk back out the door.
Well that is essentially what crowdsourcing is.
Loans and More
This section provides you with ways to get substantial amounts of funding. They also provide the biggest risks. We are going to go over the 3 biggest ways for you to get funding for your business.
You may have heard of these in the past, but you may be surprised at how some of these processes work and more importantly what they take. Before choosing any of these options, make sure you weigh the pros and the cons and then decide which process seems like the best fit for your business.
You wouldn’t run out into the highway for a $1.00 bill would you? Don’t answer that, just always make sure the reward outweighs the risk.
You might think bank loans are the sure fire way to go, but you need to realize that banks don’t always have your best “interest” in mind.
This might not be the sure fire thing you think it is.
This is the best way to get up to $500,000 for your business without having to give up even 1% of your business. If equity is a big deal to you and I mean like you don’t want to even give up any of your business for help, then this is your ideal option.
The interests rates are usually much lower than you will see with any other kind of loan.
Also bank loans aren’t forever, so if you can pay them off quickly then you don’t have to worry about working with someone for the rest of your businesses life and here’s a little known tip, the interest on your loans is 100% tax deductible.
Another huge advantage is once you get approved for the loan, that money is yours to do with as you please. You will not be given an itemized list and told what you can and can’t spend money on.
The banks aren’t going to try and micromanage your company and if you initially wanted the money for marketing but then you decide that you’d rather use it for equipment or supplies then you still have that freedom to make those choices.
You might be thinking, yes, yes, Yes!, sign me up today, but hold your horses and let’s see what the downside is.
Now let’s look at the dark underbelly of the banking system. Okay it’s not that bad, but it can be.
Banks are not risk takers and they strongly adhere to a bottom line. If your company isn’t profitable or your still pre profit then you are going to have very little chance of getting approved.
It’s hard to get approved and if you don’t have that killer business plan at hand you might be leaving with nothing but bills in your wallet.
This can be disheartening, especially with the amount of paperwork and time it takes to even get approved. If you’re looking for a quick investment then this won’t be a good fit.
The biggest thing you need to realize when you get a loan is that you must provide collateral, which is an asset such as a piece of real estate. Now before you go running to the bank and putting your house up for collateral because you know your business is going to earn you millions, think it through.
While the interest on your loan is deductible and usually on the lower end it can still be very confusing and expensive, so if you can’t afford it, then it’s not worth having tax write-offs for a bankrupt company.
If you put up your house, and your company, and you can’t afford the loan, then you will also lose your house. The harsh reality you need to realize is that banks don’t care if you fail or succeed.
They are going to make a certain amount of money either way and they are okay with it, so you need to make sure this is something you can also live with.
An angel investor is someone who you can go to that will help you with funding for your start-up or even for the expansion of your already growing business.
These are people who are not looking to just loan you money and take some interest for their time. These are people that are using their own money for the financing, and because of that they have a very big stake in your company.
Now they don’t just do this out of the kindness of their heart, don’t let the “Angel” part fool you. If they think your business is worth investing in, then they are going to want a piece of your company.
This is called “equity financing”, you give me my money and I’ll chip off a piece of my soul and give it to you. Okay so you are not selling your soul, but giving up a part of your company, the company you built with your own two hands can be just as terrifying.
If you’ve ever seen the show Shark Tank, then you know exactly what I am talking about, but that only shows us scripted meetings and parts of the picture, but the takeaway is the same, not every investor is the same and not every investment will make sense for you.
Unlike a bank loan you’re not risking your house or other piece of collateral, and angel investors actually do have a vested interest in you and your company. If your company crashes and burns, then you and your investors can just stand up and go your separate ways.
They want to see your business thrive, because if it doesn’t they lose out the same way you do. This means that you are not only getting money, you are also getting access to resources you might not have, especially if you are a start-up.
An issue you may have with angel investors is actually the exact opposite issue you can expect to have from bank loans. While bank loans fund you and leave you alone until you stop paying them, angel investors will be holding you responsible for how you run your business.
Not only are they taking a piece of your company, they are also taking a percentage of the control of your company, and the higher the percentage then the more power they have.
You have to decide how comfortable you are with someone else’s hand on the steering wheel of your company.
VC’s are similar to angels, but there are some glaring differences. Angels invest their own personal money, whereis VC’s invest other people’s money.
If you need a substantial amount of money, like seven figures substantial then this might be your best option.
That being said VC’s don’t just give out bags of cash, like every other type of investment there are pros and cons.
The fastest way for your company to grow and expand.
Unlike banks VC’s are usually willing to take much higher risks if there’s a good chance that your company will end up being worth some real money.
This allows you to receive a sustainable amount of money without the interest payments that you would have if you went with a bank loan.
Also like angel investors if your business goes under, then you can all swim away from each other, without you having to worry about paying them back or losing your house.
They also bring in knowledge and experience.
They have connections in the industry, allowing them to help you network with other investors and they can help you navigate some of the common startup mistakes.
You’re going to have to give up a percentage of your company and a seat on your board of directors. This means you’re losing a piece of your control over your company.
Depending on the terms of the deal you make, you could be looking at losing control on a vast majority of your decision making.
You could be facing restrictions on who you can hire as managers and what their salaries will be. This loss of control can be hard for some people to handle.
There are risks and reasons to go with any of the options we discussed and while you may be able to rely on self funding at some point you will most likely need to look at one of the methods below to get a substantial amount of funding.
If you know which way of funding makes the most sense for you, continue reading to find out how to go about actually getting your money.
We are now going to go over the various resources that are out there for startups and small businesses.
These resources should help point you in the right direction and maybe even get your foot in the door.
In this section you will be able to find different resources that will help you connect with potential lenders. There are many different companies and resources out there and we want to connect you with some of the best ones.
We have no affiliation with any of these organizations, and the groups and they were chosen because they offer the best available resources in their fields for new businesses.
By this point you should know which method you are going to use to fund your company.
If you think that your business plan is the perfect fit for crowdsourcing then we’ve got you covered.
There are hundreds of crowdsourcing platforms out there, so instead of making the eBook thousands of pages long, we will provide you with the two of the most popular.
I am sure you’ve heard of Kickstarter, it has become part of the English language at this point. I am pretty sure it’s even in the dictionary now (probably not). That being said you might never think of utilizing it for funding your business.
While kickstarter does focus on arts and entertainment projects, it also allows for companies in all sorts of fields to gain funding.
An important thing to know is that Kickstarter only offers fixed funding. This means you can’t touch a penny of that money until the entire amount is raised, so make sure you’re asking for a reasonable amount.
If your campaign fails to reach the amount then that money goes back to every backer and you just wasted your time and effort for nothing.
Unlike Kickstarter Indiegogo is not a part of our everyday language, but it should be.
This platform allows the same resources as Kickstarter, but it also offers flexible funding. This type of funding allows you to receive the money no matter if you reach your goal amount or not.
If you decide you want to try and find an angel investor this can be easier said than done. The easiest way is to ask anyone that’s part of your network. Contacting people who already know your business can help connect you to the right people.
Now let’s say you don’t have any connections, that’s okay we are here for you.
It’s not like you can open a phone book and find a listing for Angel Investors, and now that I’ve shown my age, let’s get back to finding you the right resources.
None of the following websites provide direct funding, but they do help you make connections with angel investors.
Angel Capital Association
They have connections with over 14,000 angels and 250 groups at their fingertips, and offer their services for anyone in North America.
It’s a great place to start your search for an angel.
Gust claims to be the largest startup network, and with over 800,000 founders they just might be. It’s definitely worth checking out for any startup.
They offer a lot more than just connections to investors. Their website says they want to help every founder win, and the only way to find out if that’s true is to check it out.
If you do decide to go with a VC firm then you are going to want to get some reputable information on the different firms and the best way to approach them.
NVCA (National Venture Capital Association)
Is a resource that actively supports new entrepreneurs by supplying them with not only information on different firms, but actually helping them connect with the best firms for you.
They can also educate you on in’s and out’s of VC’s and provide you with information that investors want to see. This can help you take your lean business plan and tailor it for meetings with VC’s.
SBA (Small Business Administration)
This is a great resource for any small business and one that you should definitely utilize. The SBA is its own agency and is a part of the federal government, and they exist to protect every small business’s interest.
They offer an unbiased view of how to navigate all of the obstacles that come with asking a VC firm for money.
They offer much more than just that though.
There is a treasure trove of free information, documents and connections for you, plus they have free services like business counseling.