By Amber Ferrie
February 12, 2018
You have an idea and now you’re off and running. You love the idea and think it will change the world. But how do you get funding and share the love with investors, who can help you pursue your dream?
Here are a few options of who to send a Valentine to:
One of the most traditional ways of funding your idea is to get a loan or line of credit through a local banking institution, which you then pay back over time. However, depending on your credit history and if this is your first endeavor, you might find this to not be the easiest angle. Often, banks will require some sort of collateral against the debt you’re asking about. After all, I’m sure you’d be the first to admit that entrepreneurship comes with a lot of risk.
An alternate Valentine … the Small Business Administration (SBA). An independent agency of the federal government, the SBA is there to “aid, counsel, assist and protect the interests of small business concerns.” And they have loan opportunities, as well as loan guarantee programs (read, making it easier to work with the above) too.
The Angel (Investor)
An angel investor is typically someone (or a group of people) who put their own money into startups in the early stages (meaning they want to be invited to your Valentine’s Day party early and stay for a long time). They make their own decisions about investing and in return they take in shares of your business, as well as consulting on your business. However, they do not oversee strategic direction or have an executive say in your business. Think of it more like friendly advice.
The Private Equity Group / Venture Capitalist
While they might sound similar to an angel investor, private equity and venture capitalists are different, both in how they give money and how they work with a startup. Private equity groups and venture capitalists are generally a firm rather than an individual. They give money only to qualified startups, mainly those who are on a high growth trajectory, or have the potential for one. When these professional investors buy in to your organization, they become partners and have a say in making sure your business is ready to scale and grow.
We are family … Another alternative to private equity groups and venture capitalists is the family office. A family office, in its simplest form, is an organization that oversees a family’s affairs. Recently, family offices have taken to investing by themselves, rather than going through a private equity group. Why? Well they gain more control over their own investments and skip the fees associated with a private equity group. So how does this benefit you? Sellers benefit by attaining a partner with industry experience who works with your business directly. Plus, family offices typically hold your organization for longer than five to seven years (which is typical of a private equity company) so there’s less pressure to perform in the short-term. Read, it’s a more patient type of capital investment.
While it sounds like a pretty cool superhero name, this particular setup is great for entrepreneurs and startups because it often provides lots of options and opportunities, including office space, resources and even networking with fellow startup companies. While it might not be a direct way to get funding, it’s a way to build your business from the ground up while having access to local resources and collaboration. Plus, you never know who may stop by.
Not sure an Incubator is right for you? What about a co-working space? Co-working offers a collaborative work environment, generally on a monthly membership. While incubators often have more structured memberships with certain criteria for joining, co-working spaces offer the ability to have offices space, often in lower cost environments, and access to fellow entrepreneurs and community partners for collaboration.
While it might not work for all your funding needs, trading or bartering can help you if you have something specific you need for your business. For instance, if you need to spread the word about what your startup provides, you could see if a local publication wants to trade some of your services for free advertising. But remember, bartering comes with its own set of accounting implications.
Grants are government funds that are set aside to support things like technology or causes. So how do you know if there’s a grant out there that will work with your startup idea? Check out Grants.gov. It’s a searchable directory of over 1,000 federal grant programs. So take some time and do some digging to see what might fit best for you.
Think all of these options seem kind of slow moving or time consuming? Too many hurdles to jump through? Welcome to crowdfunding, where you basically take matters into your own hands. Crowdfunding taps into your own networks (and your friends’ networks, and your friends’ friends’ networks) to reach a goal. By using crowdfunding sites like Kickstarter, it allows you to raise contributions from a large number of people. Why do people contribute? Well, sometimes it’s just because they believe in you. Or you promise them the first version of your product, or some sort of awesome company swag. Whatever the reason, crowdfunding is a way of sending your Valentine to hundreds, if not thousands, of people.
You have a dream and you know what it will take to accomplish that dream. Self-funding your endeavor allows you to build up funds and equity at your own pace. It might be a slow moving process, but it’s yours entirely.
So who to choose …
There are plenty of options for how to fund your business endeavor. The important thing is to spend the time and effort to research each option and decide what’s best for you and the goals you have for your business. Think about the pros and cons of each (hey, no Valentine is perfect) and how each will affect your business model. This isn’t about love at first sight, it’s about a lasting love … er, business model.