You can fund your business through many different approaches. Much like anything else in life there are almost limitless choices and paths. Some work, some don’t. Most work some of the time, none work all of the time etc.
But lets look at some of the options on the table and then later on we can go into details of how to actually go about doing them legally (have your lawyer look at it first please) and effectively.
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Personal Cash
If you are reading this, then I doubt this is an option. But you may be able to siphon money away from other things in order to support your entrepreneurial expenses. Remember starting a company is an investment. It may be long term, or it may be a short term investment, but you are looking for a return from your company. Often times, that means suffering now for the potential later reward.
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Friends and Family
This is generally a preferred but very limited method of raising money. Essentially you are asking your friends or siblings, parents or others you have a personal connection with to invest in you. It is unlikely that they actually understand or care what you are doing. They should be investing because they want to help, and they hope you will succeed. You should not promise them a return. In fact, you should pretty much promise they will lose the money. There is a 90% (statistics are such crap) chance that you will start an “under-performing” company. They need to know the risks, or friendships will die, family will feud, and lawsuits may ensue.
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Angel Investors
Yes there really are angel investors out there looking to put their money to work in companies. They may even be dreaming of night about your company. But they won’t come banging on your door… normally. The angel networks that are easily accessed tend to be lies and false hope. I have never heard of any succeeding and I have been starting companies and raising money for quite some time now. There are some qualifications generally associated with Angel Investors and they are important in legal issues we will cover later.
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VC’s
Venture Capital, the Green Devils, evil incarnate… whatever you may call them, they aren’t that bad. Remember they are in business and you should be fine. They rarely look to invest in seed stage companies, but maybe you will find one that wants to invest in you. These companies are experienced investors and know how to form a legal document to their advantage. They have all lost plenty of money, and every time they do they learn, adjust and make sure that the same mistake doesn’t happen again.
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Credit Cards
Credit Cards can be a really effective way to get startup capital. Be CAREFUL. Understand the rules and plan for the failure. I had a simple mentality on my first company. I didn’t care what it meant, but I was going to succeed or go bankrupt. I ran up credit cards, and I was lucky it worked out for me. If you have a bankruptcy already, you probably should not use this strategy. If you don’t have a bankruptcy or any other really good reason to fear some credit damage, and serious debt… feel free. I would suggest looking into balance transfers, 0% interest cards and some of the other features that can really help delay the fee payment hell.
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P2P Loans
P2P loans are a relatively new online phenomenon. Basically, it is other individuals loaning out money at set rates. The terms can be pretty appealing, but the capital levels seem to be low. Normally you can raise between $1,000 and $25,000 through these systems, which can easily be enough to get a product off of the ground. If you don’t have a FICO score of atleast 660, don’t bother. You will end up paying credit card rates for the loan so you may as well get the airline points.
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Pay Day Loans
Pay Day Loans are credit cards on interest crack. I knock them and refuse to go near them myself, but I do know a couple people who have launched companies very quickly with them. I even know a company that used a pay day loan to make payroll until an acquisition was complete. But I would suggest credit cards before these loans.
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Government Grants
Grants are tough. It takes a lot to get through a beaurocracy and the grant departments tend to be the worst. They are a viable option for women owned, minority owned, and non-profit companies but I have never qualified in those groups. I really can’t comment on these so the reviews are simply links to outside resources.
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SBA Loans
SBA Loans are AWESOME. They are quick, easy and I have always gotten them structured as a credit line. You will need to be incorporated, have some kind of office space and some legitimating paper work, and cash in the bank. I have seen people use pay day loans, credit cards and personal loans in order to get enough cash in the bank to get an SBA loan, and then pay back everything quickly, and run off the SBA alone.
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Revenue Share Consulting Agreement
This is actually one of my favorite ways to help new entreprenuers get off the ground. Basically, find a client that wants the product, get them to cover the costs, then you sell it and they get a continued revenue share or equity stake. There isn’t enough of this in the marketplace right now. Companies are constantly building out systems and products that they will never intend to monetize, but are needed peices to continue doing business, and are needed by their competitors. Doing it in this structure can allow them to take money from their competitors, maintain a competitive advantage and really mitigate development costs.
Anyways, I hope this helps with some of the higher level options for fund raising. I am creating an ongoing list of resources in the Reviews category that should help find services and information related to funding. I am also working on a few case studies for each of these options to get down and dirty with how it works in the end.
Funding your startup 