Venture Capital (VC).
Venture capital isn’t for everyone. Out of the hundreds of thousands of businesses that get started each year, only a few thousand receive venture capital investment. The companies that do receive VC funding typically fit a very specific profile:
- Have breakthrough, game-changing potential
- Require large amounts of capital to get off the ground
- Are usually technology-based in some way
- Require high-priced talent, where “price” may mean rich
stock packages as much as, or more than, cash compensation.
If VC money isn’t the right path, then perhaps raising money from “angels” is. Angels are wealthy individuals who invest privately in small young companies. There are
numerous professional angels and angel groups that invest as little as $50,000 and as much as $2 million in young companies. Angels are great if you are in a
field where others have made a lot of money and if you have a related business. Angels like to invest in people and businesses who look like them 10-20 years
Friends and family.
One of the most popular sources of financing is people who
know you well. And who knows and trusts you more than your friends and family? Not everyone has wealthy friends and family who are willing to write $10,000 or $25,000 checks to help finance a business, but many people do. Further, your close friends and family may themselves know wealthy individuals who are interested and willing to write a check.
Former professors, professional colleagues, business partners can all be good sources of capital in this way. In 2008, over 55,000 companies received “angel” or friends and family” investments, with a total of nearly $20 billion invested from 265,000 individuals. Maybe you can find one of those hundreds of thousands of individuals and convince them to invest in you as well!
Many entrepreneurs forget that a compelling source of capital can be their own customers. If you are delivering enough value to your customers, perhaps they will
be willing to prepay for your services, or even extend a low-interest loan to you. Make them dependent on your service and you may find they’re willing to lend a hand to keep that great service coming.
Some entrepreneurs have the wherewithal to reach into their pockets and put up their own start-up money. In some cases, this could be tens of thousands of dollars from savings or credit cards. In other cases, the start-up capital required to bootstrap a business could be hundreds of thousands or even millions of dollars. Keep in mind that finding the right path to funding can be as important as the figuring out how to create the business itself.
How About You
Have you been bootstrapping your business? What would happen if you sought funding to take it to the next level?