Funding Your Business So You Can Focus on Your Business

Looking for funding? At some point, almost every entrepreneur has to bite the bullet and hunt for capital, whether to start up or to grow.

To make sure your fundraising has the best odds for success and comes with the fewest downsides, we recommend that you start

1) What am I going to use the money for?
2) When am I going to need it?
3) How much do I need?

With the answers to these questions in hand, you'll be equipped to choose from among the following funding options and avoid wasting precious time.

Bootstrapping

Look no further than the mirror to get funded. Bootstrapping requires you to tap into your savings, your initial revenues, credit cards, equity pulled from your home, etc. The nice thing is that you maintain complete financial and operational control over your business, and you won't have to service a loan interest rate. But on the flipside, this strategy puts you completely on the line - if you fail, it's all your money that's lost.

Debt Financing

Debt financing requires that you qualify for a traditional bank loan (something raw startups can't commonly do), or that you find a bank that can provide you a loan with a SBA guaranty.

Before you land a loan, you need to understand how to maximize your odds for success. The lending process is inherently a tough one, but it's also a system that has been the catalyst of success for many small businesses. In fact, some entrepreneurs would say that their relationship with their banker has been the pivotal ingredient to growth. Which brings us to our final comment about banks: Build a relationship with a local banker and your chances of success in getting a loan will go up significantly. Many times, exceptions to rules are provided but only when there's a tight bond and confidence level you've established with your banker.

Friends and Family

Just like it sounds, raise money from people you know well, either in exchange for equity or as a loan to be repaid. This form of capital has the fewest strings attached. But that doesn't mean it should be treated casually. No matter who provides you capital, it needs to be memorialised in a formal, written contract. Remember, too, that friends and family are a "capped" resource. In other words, there's a limit to how much capital they'll provide. If you're looking for deep pockets, check out Angels (below), a better option to consider.

Angel Investors

Angel investors are individuals who invest in companies at an early stage in exchange for equity and, oftentimes, control over part of the company. It may be surprising to you, but angel investors provide over $18 billion to startups and young ventures each year. Don't expect these firms to show interest in your business, though, unless you are looking for more than $25,000. They don't have time for the "small stuff."

The great thing about angels is that they come with added resources, sometimes far more valuable than the money itself. They can provide contacts, strategic counsel and moral support when the times are tough. We call that "smart money."

Venture Capitalists

Venture capitalists are individuals or companies with large amounts of capital to invest and they expect high returns on their investment. They want to put money in with the sole objective of getting that money back out in multiples of their original investment.

Use Venture Capitalists if you already have a great track record and if you have a business concept that will require a lot of money ($250K to $10s of millions) to achieve a rapid growth curve. Like angels, VCs invest smarts and networking in addition to money. VCs typically have more money available if you need it down the road.

But in reality, VCs are only a good target for a fraction of companies searching for funding. And you've got to be willing to give up significant control over major decisions for your company.

Once you've identified the right source of capital, then it's a numbers game. You can almost count on not succeeding with your first fund-raising meetings. You're often not as polished as you can be and the learning you take away from those first meetings can be used to hone your presentations for the next meetings with prospective financiers.

While the old phrase, "kiss a lot of toads," definitely applies to fundraising for a business, it's certainly possible to get funding. Just look at those billions invested by angels!

Related Links:

Listen to this StartupNation podcast for more insight on finding funding: Persistence Pays off in Finding the Funding.

Listen to this StartupNation podcast for information on how to land an SBA-backed loan: Straight to the Source: Securing an SBA Loan.

About StartupNation:

Founded by Jeff and Rich Sloan, StartupNation provides entrepreneurial advice via a nationally-syndicated radio program and through online content for entrepreneurs who want to start a business. The Sloan brothers are successful inventors, experienced entrepreneurs and also authors of "StartupNation: Open for Business" (Doubleday). They've been featured in numerous, international publications and frequently appear on national television. For more information, call (866) 59-START or e-mail info@startupnation.com.