How to Get the Cash Money to Start a Business
Financing for a startup is not very easy to acquire. But it is not impossible either. Some financing methods are fairly easy, while others are extremely difficult to obtain. First, I will define some methods of obtaining financing and rank them as Hard, Medium and Easy:
- Hard: Venture Capital (VC) / Private Equity – These are companies looking to pump millions into the next Google or YouTube in order to reap great rewards. YouTube sold for $1.6 billion. The VC probably invested less than $60 million. In other words, their investment could have increased 2600% in two years!
- Hard: Angel Investors – These are rich people looking for the next Google or YouTube as well. Instead of pumping millions into a company, they pump a few hundred thousand into business. If the startup does well, a VC may come along and buyout the angel for a good reward.
- Hard: State Funding – Stated often have grants for entrepreneurs. It is in the states best interests to fund companies. A successful company produces great tax revenue - income tax on employees and corporate tax. And more importantly, companies employee people. After all, nationwide, small companies are larger employers that large companies.
- Medium: Bank Loan – If you have collateral, then you can get a bank loan. Usually, the collateral is your house. People with houses are usually established (40+ years of age). Doing this is risky since, you could loose your house. Most people are not willing to task this risk.
- Medium: Friends and Family (F&F) – The likelihood that F&F will give you money is higher. Friends and Family usually believe in your capabilities to make a successful business.
- Medium: Rich Contacts: You may know some wealthy people and these wealthy people could become investors in your venture. For example, if you are a drug representative for a pharmaceutical company, you know many doctors. You may be able to convince these doctors to invest. It is better if they understand the idea such as ideas relating to medicine.
- Easy: Credit Cards - If you have good credit, then it is possible to get a good sized credit line on multiple credit cards. The credit cards could even be 0%. However, if you start a manufacturing business that requires multiple hundreds of thousand, then credit card funding will not be enough.
- Easy: Personal Funds – If you are have money in the bank, then you can risk your personal funds.
- Easy: Bootstrapping – If you business model allows it, you could start out very small. You would sell something and use the profits from the sale to make more sales. Eventually, your business will grow.
DISCUSSION: For the Hard and Medium methods you will need a:
- Business Plan – In my opinion a business plan requires a lot of effort and time. But at the end of its writing, you do have some idea of how to execute. However, your business plan is a living document that will change.
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Ability to Convince People: You need to convince people that your idea is better than the other good ideas of other people. However, an idea is really worth nothing without execution. Lots of people have good ideas. You also need to convince people by showing them you experienced management team and maybe even a prototype.
It is obvious why I call the easy methods of obtaining financing for a startup easy.
For anyInput, I choose a combination of the easy methods because I wanted funding now rather than later. I am an engineer not a business person. I did not want to waste time developing a business plan. Also, the like hood of getting denied funding using the Medium or Hard methods is high. Lastly, the startup money I needed was relatively small. I need to spend money on consultants, servers, and marketing at this stage. All the rest was sweat and blood - hard work!