By Justin Gaither
As an entrepreneur, I’m often asked how I went from an idea to building and running a profitable venture. Having a great idea is exciting, but reality hits when you realize all the things you may need to get going: a website or mobile app, money for advertising and marketing, a team and maybe some financial and legal advice along the way. All of these components will probably require money, so unless you’ve been a huge success in a previous venture or line of work, you will have to raise some capital. Here are some ways you can start and fund your new business.
I started my first company in college, helping students maximize the space in their dorm rooms by installing bed lofts. Our company generated a quarter million in sales before spending much money or even delivering a product. We didn’t go and buy all the materials needed to build the lofts before we had sales. We presold our product by posting a before and after picture of a lofted dorm room juxtaposed to an un-lofted room. We built a simple website that cost us $400 so that students could place orders. This is a great example of what’s called “bootstrapping,” where you can fund a business with your own money and from your customers before making big investments.
Friends and Family Money
Maybe your business idea is more complex than my college dorm room business, and you’ll need more money to get going. Friends and family may be a part of the funding equation, as these people know your character and talents best. They might not be able to finance your entire project, but they may be impressed enough to put in a couple of grand to get you started. The key with friends and family is to have a solid plan illustrating how your business will make money and a clear request. Are you asking for a loan, equity investment or a gift? If it is a loan or equity investment, be up-front about what they can expect back and when.
Crowdfunding is the practice of funding a venture by raising money from a large number of people. This is often done through crowdfunding sites such as Kickstarter and IndieGogo. This can be a good way to get started if you have a high-tech consumer product that would appeal to early adopters of new technologies. The great thing about crowdfunding is that, in many cases, investors don’t have to be accredited to back your business and you don’t have to rely on a relatively small pool of high-net worth individuals for funding. It levels the playing field for businesses that can get the support of consumers and early adopters, but may not attract traditional investment dollars.
Consider Loans from Banks
If you can demonstrate that your business has gained traction, is making money and that a loan would help you earn even more, you may qualify for a traditional loan from a bank. Many banks have increased their commitment to funding small businesses, so this is an option that should be considered for raising growth capital. This probably is not an option if you are just starting off and have limited traction.
If you have a high growth start-up, then angel investment might be for you. Angels will invest in big ideas that have the potential for large returns on their investments, and typically invest $10,000 to a couple of million. Sites such as AngelList allow you to connect with angels all over the world. You will need to demonstrate a big vision to angels and show some form of traction, be it revenue or user growth, large contract commitments or some competitive advantage that demonstrates an ability to successfully execute and build a large business.
Accelerators and Incubators
Accelerators and incubators can be a great resource for high-growth companies, because they will help you accelerate growth by connecting you with the right advisors and capital sources. Some programs even provide some early funding to help teams validate their ideas. There are programs all over the country with different sector focuses, so it’s important to do your research and find a program that best fits your business needs.
Justin Gaither lives in Charlotte. He is an entrepreneur and co-founder of eCampus Ventures and Managing Partner at Investead Real Estate.