It’s been said that it takes money to make money. The aspiring entrepreneur is often pressed to find more funds. Where can you find them? Here are some creative ways to finance start-up businesses.
1. Founder’s capital
Prepare for your start-up business by saving. It will take much more money than you planned. Consider inviting a wealthy and trustworthy friend or relative to be a co-founder and perhaps silent partner. Other people and firms who might consider investing want to see that the founders are truly committed to the venture with their own funds.
2. Friends and family
These people believe in you and your ideas. They want you to succeed. They are mostly interested in the founders and if the concept sounds interesting. Many of them say, “If you, the founders, are committed to this, I know it will go far. Count me in.” Usually, they do not conduct complete evaluations of things such as reputation, revenue, or accident insurance coverage for employees, but rather invest based on faith. Their knowledge of the founders is the key factor that helps them get the risk to a manageable level.
Most of these supporters come in prepared to lose their investments in order to support the founders in fulfilling their dreams. Consider selling unregistered securities through a private placement offering (PPO) to friends and family who qualify as accredited and sophisticated investors. Engage security attorneys to ensure compliance with the Security and Exchange Commission (SEC) and state “Blue Sky” requirements.
What services or products do you have or will you have that one of your service providers wants? Rather than pay cash, barter. Explore how you can exchange products or services instead.
4. Stock options
Talented people can often be enticed to work for equity as a form of compensation. Rather than fork out the firm’s limited cash, explore setting up a stock option for employees as well as consultants and service providers.
5. Government grants
Government funding — at the national, state, and local levels — can support development of new technology at research institutions and support entrepreneurial activity. The technology from research organizations can ultimately be transferred to start-up businesses.
Explore what government sources are available for your venture. For example, apply for SBIR (Small Business Innovation Research) grants administered through the various US government agencies. If you are a foreigner to the country, make sure you know the additional requirements. The Citizenship Bureau gives you a better idea about the importance of Country of Tax Residence and Residential Status, should you start a business outside your country of origin.
6. Corporate fees and grants
Engineering charges for consulting and customized development may be available from commercial accounts interested in applying your technology to their pressing concerns. These corporations get an early look at the product offering and have the ability to greatly influence its direction. Additionally, these firms may evolve into long-term strategic partners.
7. Revenue from product licensing and sales
Once you have a product available, revenue from its licensing and sales activity can help bootstrap the firm. Choose projects that will generate cash to fund your ongoing operations.
8. Debt financing
Some firms find debt financing through banks and other financial institutions and investors. The funds must be repaid plus interest. For example, the Small Business Administration has a business loan program that works in conjunction with banks. However, the majority of these lenders consider your credit score status as an important factor to determining your trustworthiness.
9. Angel investors
Angel investor networks have formed throughout the country. These high-net-worth individuals are sophisticated investors interested in early-stage private equity investment in emerging firms with great potential. They may also want a management or board position in your firm as part of the deal.
10. Venture capitalists
After considerable due diligence, these firms make private equity investments in promising early-stage companies. A venture capitalist’s primary goal is to maximize financial return while getting the risk to a manageable level. In exchanging their money for an ownership stake in the company, venture capitalists also bring business acumen, contacts, and seasoned board experience to the firms in which they invest.
Featured photo credit: Ideator Team via ideator.com