Very few people can raise the necessary capital themselves to launch a new business, especially if it is their first startup. Though a necessary part of the process, investing your own money may not be enough. How can you raise capital for your business, and where can you get it?
Create a solid plan
Your business won’t be successful without a solid plan in place. Without one, you also won’t be able to secure capital to even get started.
“Every successful business transaction starts with a carefully developed plan,” Jeffrey Hayzlett writes in a September 2017 article for Entrepreneur. Hayzlett says that a good plan should identify the problem your business is trying to solve, highlight the unique features that make your service or product stand out and use these highlights to build a short pitch. You should also identify future milestones and then extrapolate how much capital you will need to raise to meet them.
Without a solid plan, potential investors won’t have any reason to believe they can trust you and your business with their funding.
Friends and family
Borrowing money from friends or family is one of the most common ways of financing a new small business, though many investors understandably shy away from it. After all, “in these situations, the potential cost of failure isn’t just financial; it’s personal,” Benjamin Pimentel warns in a January 2018 article for NerdWallet. The key is to present your pitch professionally and treat your friends and family like real investors, as they are. This will make things go more smoothly if you are turned down.
On the upside, that personal relationship can take you further than you could go with an unfamiliar investor. “You might be surprised by who has extra cash and is interested in supporting your dreams,” Drew Hendricks writes in a July 2014 article for Forbes.
Crowdfunding is an increasingly popular way for small businesses to raise money. Websites like Kickstarter and GoFundMe let you solicit funds through online campaigns. In return for their money, donors receive services or products related to the project you are trying to launch, the value of which is based on the amount donated; for example, a small donation may be rewarded with a handwritten thank you card, while a larger sum may grant the donor with early access to your product. “Rewards-based crowdfunding is a good idea for small business owners looking to get their business off the ground without being beholden to shareholders or weighed down by loan repayments,” Erin El Issa and Jackie Zimmermann explain in a December 2017 article for NerdWallet.
Angel investors are individuals with deep pockets who will invest in your startup, typically in exchange for a higher rate of return than traditional investors would otherwise receive. Some of the most prominent companies in the world, including Google and Yahoo, received help from angel investors in their early stages. “The big advantage is that financing from angel investment is much less risky than debt financing,” Susan Ward writes in an October 2018 article for TheBalance’s Small Business. “And, most angel investors understand business and take a long-term view.” You can find angel investors on websites like New York Angel and Angel List.
These are some of the ways you can raise capital for your business. Others include credit card loans, personal business loans, SBA loans and microloans from nonprofits. Talk with a professional to explore all of your options.