Any entrepreneur will tell you that raise Funding can be the toughest part of starting your own business. While the competition for funds gradually increases each day, your chances of securing investors significantly slim. Of course, finding an investor isn’t impossible, but one of the best decisions a business owner can make is to find alternative means that will contribute to their financial success.
One of the most common misconceptions by entrepreneurs is that they must raise a great deal of up-front capital to succeed. This is simply not true nor is it usually possible. So if you’d like to avoid giving up equity before you have to, heed these five tips to move from bright idea through prototype without raising bundles of investment capital.
1. Open your own wallet first:
Tap into savings, home equity, or retirement accounts. It’s risky, but don’t expect others to invest in your startup if you haven’t put some of your own money in. Knowledgeable investors want to see founders show confidence with cash. They favor entrepreneurs with more than just sweat equity in the game.
2. Sign up strategic partners early on:
There’s nothing sweeter than finding a supplier, distributor, or especially a customer who stands to gain so much from your solution that they are willing and able to help foot the bill.
– If your solution aligns with a B2B business problem that the market is clamoring to solve, there will be potential early adopters who could make a strategic investment if they think you have a chance at relieving their pain.
– Early adopters provide and unique and invaluable hands-on perspective of what’s right and what needs to be changed to improve the value proposition of your solution to the markets you plan to serve. These companies will be less focused on final returns and more interested in getting your prototype to beta.
– Every startup has to sell its stuff: In-house sales teams are challenging to staff and a challenge to manage. Before you build a direct sales team into your business plan, explore other options-online, manufacturers reps, or companies in your industry that sell solutions that could be enhanced by yours.
– The quality and reliability of your supply sources, whether for materials or software will be key to your success. Far better to create relationships and work out the kinks while your company is simple and small than to discover an issue when you’re ready to scale.
3. Get Venture Capital For Your Business:
This is where you make the big bets. Venture capitals are professionally managed funds that invest in companies that have huge potential. They usually invest in a business against equity and exit when there is an IPO or an acquisition. VCs provide expertise, mentorship and acts as a litmus test of where the organization is going, evaluating the business from the sustainability and scalability point of view.
A venture capital investment may be appropriate for small businesses that are beyond the startup phase and already generating revenues. Fast-growth companies like Flipkart, Uber, etc with an exit strategy already in place can gain up to tens of millions of dollars that can be used to invest, network, and grow their company quickly.
4. Bootstrap your business:
– Provided that your business isn’t operating in an industry that requires lots of startup capital, like manufacturing or transportation, you can potentially fund your own venture and it may be more feasible than you think.
– For instance, even if you don’t have enough savings to run the operation, you could get a 0% / low-interest APR business credit card, offering you the chance to borrow cash for a period of time without incurring interest.
– Perhaps you think funding the business yourself carries lots of risks and it does. But it’s important to consider your potential.
– Brent Gleeson, leadership and team-building coach specializing in organizational transformations, states, “if you believe in your vision and have an absolute refusal to accept failure as an option, you should feel comfortable investing your own money into the business.”
– Investing some of your own money will usually make investors and lenders more willing to partner with you down the line.
5. Raise capital by asking friends and family:
– Raising capital through friends and family is a viable option for many. According to the Global Entrepreneurship Monitor, 5% of US adults have invested in a company started by someone they know.
– Caron Beesley, a content marketing specialist and SBA contributor, advises that you ideally select a friend or family member with solid business skills. She also suggests that you “narrow your list down to friends or family who have faith that you will succeed, who understand your plans, and who are clear about the risks.”
– Once you’ve done that, Beesley stresses that you must demonstrate passion and due diligence by having a sound business plan and direction. Also, be realistic about how much money is needed.
– Finally, make sure to agree on what form the funding will take. They could be a loan or equity in your company. If the money is a loan, agree to a repayment plan and use a P2P lending website to document everything and manage the loan.
The key lesson here is that you have many options for financing your business. Don’t get discouraged
if one doesn’t work out. By demonstrating due diligence and being resourceful and persistent, you
can raise the capital you need.
Now it’s your turn. How have you attempted to secure your startup’s financial success?
