Getting funding for your business is one of the most important and difficult steps in becoming an entrepreneur. The road between startup and profitability needs to be paved with your undivided effort, talent and creativity.
But don't worry — if you're not sure where to begin, this article will help. Here you'll find tried and tested ways to raise money in the early stages of your small business or solopreneuer venture. They aren't listed in any particular order because there is no "best" order. No single way works for every business. Each path to funding has its pros and cons. Carefully consider your mission and your own resources when reviewing these options for your funding journey.
Here are five popular funding options:
If your business produces a consumer product, then crowdfunding may be exactly what you need. Put simply, crowdfunding allows you to presell your product. If enough people buy during your presale, you'll receive the money and fulfill the orders. If the sales don't reach your goal, then everybody walks away without losing any money. Look at popular crowdfunding sites like Kickstarter and GoFundMe for more information.
Pro tip: You'll want a marketing campaign in place for this route. Getting the word out and alerting media are important to a successful crowdfunder.
2. Personal Loans & Credit
If you really believe in your business then you might choose the high risk path of funding on personal credit — whether from banks, friends or family. Many great businesses have started this way, but it's a dangerous path. This should probably be considered as a last resort, but shouldn't be ruled out entirely. In fact, if you rule it out too readily, it can be seen as a lack of faith in your business plan.
3. Angel Investors
This is the classic arrangement of “you do the work and I'll supply the capital." If you choose this path, you'll need to meticulously map out your business relationship before signing the dotted line. Get a lawyer to help with this part. Seriously. Working out the kinks now is so much better than working them out in the future.
If you take this route, be sure to keep an open mind. Many times, your investor will want to be involved in management. That's not always a bad thing. Most of your angel investors will have gotten that way by being shrewd in business. Use their expertise.
Go with someone you already know, if possible. If you don't know any good candidates personally, start networking on AngelList and at local business mixers. You never know which contact might turn into a successful partnership.
If you find a grant that fits your small business or solo venture, seriously consider applying. It may feel like buying a lottery ticket, but many of these grants have few, if any, applicants. In some cases, the more specific and obscure the grant, the better your odds. You can start your search at Grants.gov.
If you already have a team, then consider spending a few weeks with an incubator. They usually take a chunk of your equity, which is a bummer, but they provide an accelerated path to market compared to doing it on your own. In addition, their stake in your venture will provide them incentive to work hard on your behalf. Many companies have found funding due to their participation in a business incubator.
The next two options are also popular, but aren't the best choices for a new business:
Small Business Loans
You might have an incredible idea and an enticing pitch, but the banks still might not catch your vision. If your new business has no steady income and nothing to use as collateral, you'll have a difficult time getting a loan from a bank. Learn more about applying for a small business loan.
You will see exceptions to this rule, but don't be fooled. There is little chance that a venture capital firm is going to invest in a new business. If you have an established business or strong connections you'll have a better shot, otherwise it's best to consider other options.
You've got your work cut out for you, but don't be discouraged. The longer you work at getting your business funded, the more likely it becomes. Just keep at it and never lose sight of your goals. And remember: you'll attract more flies with honey than vinegar. A positive attitude goes a long way.