Getting your startup off the ground is hard. Like, really hard. Aside from coming up with a new idea, service, or product, raising the capital can be even more challenging. Not only is raising money difficult, but the competition for capital is also fierce. Convincing someone else to believe in your dream takes a great deal of flexibility, planning, and presenting. How would you handle being turned away by 50 investors before you convince one of them? Do you have your goals defined? Will your idea make money? If you can answer all these questions positively, you may be ready to take the first step to raise capital for your dream business.
Fundraising in and of itself can be a full-time job. It can be an emotional roller coaster that drains all of your time and energy. Many investors that you count on can be strict and variable. You may never know if your pitch will yield success 10 minutes from now or ten years from now. The key to all of this is to remain humble, calm, strong, and upbeat throughout the process. You are going to hear a lot of people say “no.” Do not fight them. Accept their input, learn from them, and move along; handle this all with grace.
Now that we got through that tough-to-swallow pill, let us talk about all of the different ways to raise capital. Trust me; there are a lot of different ways. There is no shortage of ways to raise capital from bootstrapping, business loans, or angel investors. Your job is to figure out which route works best for you and your company. Take the time to find the right types of investors, and then talk to as many of them as you can.
Bootstrapping is the act of self-funding your company through managing your resources and finances. In layman’s terms: you will start your company with the money and assets you currently and personally own. Bootstrapping is great because it gives you full control of your business and pushes you to produce in the most effective ways possible. This is because bootstrapping carries no debt or obligation to an external, third-party entity. Of course, bootstrapping comes with many personal risks. If your business takes a hit, then it will impact you directly. Also, bootstrapping is often tied to slower growth as you may not have the funds to expand as quickly as you would like. Bootstrapping should always be your first idea, but many young entrepreneurs do not personally have enough assets or funds to pursue this method.
Angel Investors are highly wealthy individuals who provide startup capital to business owners in exchange for a percentage of the company. This arrangement is called “seed” money and can range from a few thousand to two hundred thousand or more. Along with providing funds for the business, most angel investors also provide mentorship to the company. For this reason, it is always a good idea to bring on an angel investor that is knowledgeable in your area of business. Along with angel investors, angel groups also exist. Angel groups are a pool of angel investors that pool money together to invest a significantly large amount of seed money into businesses. Although this may sound great, angel investors set the bar higher for your business. Angels are in business to make money, and when there is a considerable amount of capital on the line, they will want to see a payoff. It is not unheard of for angel investors to expect a return equaling 10x their initial investment within the first five to seven years. An unhappy angel investor could mean no more future funding.
Bank loans are probably the most traditional way most entrepreneurs raise their capital. Banks offer business loans that charge both interest on their loan amount and possibly an origination or annual fee. Typically, business term loans are paid back over a set amount of time, with regular repayments deducted from your business checking account. Unlike angel investors or venture capitalists, banks do not take losses. Business loans come with a low-interest rate, but they have strict requirements. That being said, these loans can take longer to apply for: the whole process can last about one to three months. Often, if you run a startup, you may find it more challenging to get a traditional business loan. It is unusual for conventional lenders to loan to startups. Many business loans require at least two years in business, and some require four to five years of sufficient revenues.
There are many more ways to raise capital, in addition to the ones that are listed above. Always keep in mind that although the odds may be slim, persistence is the key to success. Be proactive when seeking out and communicating with investors.
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