Scott is absolutely right. But. In order to make ideas happen, you’ll need money. The amount of starting capital you have will dictate how much you can initially DO and at what rate of speed the DO process can move forward.
What are some of your options? And what are the pros and cons to those options?
Keep reading to find out!
This is usually STEP 1 for most entrepreneurs (and often, a required step before you can even be considered for other funding options). Before you start digging through your pockets and the couch cushions for money, know that “self-funding” does present several options (alongside the good ol’ savings bank account):
Self-funding means that you still have 100% ownership of your company, it can be a bit quicker to obtain any needed funding, and, as previously mentioned, may be a required step before being considered for some of the other options below.
These self-funding options may involve high interest rates that can quickly add up, and a new variety of personal stress. From the need to change your current lifestyle to adapt to your new financial requirements, to the concern of losing a very important asset, such as your home, self-funding may very well feel like self-doubt.
If you’re lucky to have a close-knit group of friends or family around, you can also reach out to them. Ask if they are willing to help support your entrepreneurial endeavor. But, beware! Just know that mixing money and family, or friends, can get tricky. Make sure that all expectations and other important factors are laid out on the table – or better yet in a semi-formal written contract – before accepting any financial support.
Reach out to resources that provide actual business loans. Besides reaching out to your local credit unions and community banks, you can also apply for loans through the SBA (The Small Business Administration) and alternative online loan agencies. Google them up.
Some of the options, such as the SBA, can offer lower rates of interest, plus long terms (like, 10 years!). Bonus: you’re not draining any personal funds, so you can still save up for your Amazon.com wishlist.
The paperwork can often be lengthy (along with the wait) and in the end, it doesn’t mean you’ll be accepted to get the loan. For many entrepreneurs, the hardest step of this process is to be able to qualify in the first place. Self-funding may be able to help get you over any hurdles, as long as you can prove you’ve got a hefty chunk of cashmonies infused into your business already.
If you’re (still) in the startup phase and need some initial seed funding, an angel investor is what you seek. There are “Angels,” “Super Angels,” and plain ol’ “angel groups” that can all be valuable options for your business.
Angel investors are willing to take more risks (or, is it just bigger risks?) in the companies they invest in, and unlike a bank, this isn’t a loan. That’s right! The money you receive won’t need to be paid back, and you won’t have to worry about interest, either! An angel investor likely also has a lot of experience and knowledge that can greatly assist you and your company in staying competitive in your market.
So, what’s the catch? In exchange for providing you funding, they earn equity in the company. YOUR company. This means they will have a say in the direction the company takes and how funding is being spent. It also means a smaller return directly to you, once your company does take off.
Thanks to TV shows like “Shark Tank,” pitch contests have been insanely popular. Hopeful entrepreneurs get in front of investors (and even an audience!) and present what their business is, and what their business plan entails. These competitions are typically run by business schools, accelerators and incubators.
While these contests don’t have the same reach as “Shark Tank,” they do assist with exposure. They’re also a great way to build credibility. And if you do win a contest, well! It could bring enough capital to assist with your company’s growth AND it can grab the attention of an angel investor for further financial support.
With these perks, are there really cons? Well, yes, actually. As the saying goes, “time is money.” You can spend a lot of time researching, submitting and preparing for these contests. That is time away from further building your company. Also, there is no guaranteed return on investment, so, how big is the opportunity cost, truly? That question is one that only you can answer.
Business accelerators work with startups on a specific and short amount of time, and provide fairly specific (but hopefully not short!) amounts of capital. On top of capital, they also provide additional guidance to … ahem, “accelerate” growth.
You must have read the word capital, so I’m sure you can guess one pro. You get capital. Not only that, but the money can be enough to help you get to larger amounts of capital down the road. Until you reach these larger amounts of capital, accelerators will aim to grow the size and value of your company as fast as possible.
Just like angel investors, accelerators require a certain percentage of ownership of your company. Once again, that means that the accelerator will have a “say” in your company, and it means less of a return later on.
Just like in college, grants can be a very exciting thing to receive! You can apply for local, state and national government grants, and as far as we know, there’s almost a grant for every type of business, entrepreneur or idea out there! You just have to do some research.
Grants are essentially free money and don’t have to be repaid! Also, grants can be fairly easy to find online with a full list of requirements necessary to receive them.
Free is always good (right?) but there are a few points to keep in mind. For one, just like the pitch contests, they can suck up a lot of your time. There is a fair amount of paperwork and additional documentation you’ll need to provide. Then, it can take months before you know if you’ll receive the grant or not. There are also a lot of rules and eligibility requirements that you must meet before being considered. Between the nail-bitting wait-and-see and the strict regulations the grant may impose on your business, that “free” money can sure look like it comes with a lot of strings attached.
If your business involves selling tangible goods, crowdfunding might especially be a great opportunity for you! The goal is to pitch yourself out to the general public and provide perks to those that supply financial support.
What’s great about crowdfunding? You get to build up word-of-mouth and brand loyalty for your company and product(s) from the very start! Also, you don’t have to provide equity to crowdfunding supporters but you still gain the financial support you need to launch. Plus, your product will already be out there – in the world – getting organic advertising!
An important factor to keep in mind, just like with the pitch contests and grants, is that this also swallows up your valuable time. Crowdfunding campaigns can become official full-time jobs, all by themselves. In order to effectively engage the number of supporters you need, you have to monitor the campaign, provide updates, share on social media, and just generally get the buzzzzzz of it out there. And there’s always the possibility that you won’t get the amount of money you seek. That’ll be just one more emotional hurdle (on top of the financial one) to get over.
Ideally, as entrepreneurs we would just have the money we need, at the time we need it, and with no strings attached, to boot. Alas, there is no “perfect” business funding option, and you may need to go with more than just one or two options to get your dream business off the ground. The thing to remember here is: go with what you feel best works for you and your venture. It all has a way of working itself out, as long as you’re passionately and realistically following your calling.
Make sure to listen to one of our first episodes of Branch-Out: THE Digital Media & Marketing Podcast, where we speak with Nate Illsley on how to build a strong brand and enforce it!
Originally from Romania, Tatiana Ivan combines operational prowess with creative flair to produce smart and visually stunning brands. With degrees in neuroscience and psychology from Brandeis University plus experience working with start-ups in the biomedical and pharma industries, Tatiana knows first-hand that the most powerful way to persuade people to get behind an idea, concept or product – no matter how creative, technical or complex – is by telling a compelling story. As the COO and Creative Partner of Waverley Knobs, she combines powerful cinematography and compelling storylines for clients so they stand out and shine in the market.
In addition to turning visions into reality and running the daily show at Waverley Knobs, Tatiana is a twice-published poet. She’s also a certified InsideOut® Coach, able to unlock the knowledge, skill and talent already within people and teams so they can improve performance and results.