So you have a great idea and you’re seconds away from celebrating your brilliance until you realize you’ll need a significant amount of cash to get started. Don’t get yourself down in the dumps just yet. We’ve generated our best tips for raising capital that will keep your startup out of the “idea graveyard.”
Start by asking family and friends
The easiest and most rewarding way to raise capital for your company is through your circle of family, friends, and associates. There’s no better support than from the people closest to you. Not to mention the best interest rates as well (let’s hear it for the zero interest deals!). Chances are if your family and friends don’t believe in your idea you may have a hard time convincing others as well. A good way to get them excited is leading by example. It’s time to put your savings account to use and show them you’re willing to put each and every one of your hard-earned dollars into getting your idea off the ground.
Take a trip to your bank or credit union
Although, traditional bank loans don’t sound as enticing as the zero interest loan you can get from mom and dad, they can still provide the cash you need to get started. Traditional lenders have a myriad of programs to help small businesses. The most popular programs lenders utilize to fund small enterprises are programs ran by the Small Business Administration (SBA). The loans are based on the borrower meeting certain qualifications and are 70-80% guaranteed by the SBA in case of default. The top 3 qualifications required to qualify for SBA loans are a credit score of at least 730, a very well prepared business plan, and a minimum of two years in business.
Grab hold of the angel wings and take flight
Angel investors are gaining popularity as an alternative to traditional investment companies with good reason. An angel investor can literally ascend your startup onto the road to success by depositing seed money (usually $500,000 or less) and indispensable knowledge into the company. You may be wondering how do I find an angel of my own? Simply put, an angel investor is anyone with sufficient capital. In other words, if they have the green get ‘em on your team! However, it’s important to note an angel will invest typically in exchange of ownership interest. This type of engagement is sort of like a marriage; therefore it’s critical both parties are compatible. Angel investors are very savvy business people, so approach them with a professional concise pitch to peak their interest.
Ask for a little and get a lot
The concept of asking 1 million people for $1 each will get you a million dollars still holds true. Hence why the crowdfunding phenomenon has hit mainstream status, and is now recognized as a legitimate strategy to raise capital for businesses. There are a multitude of platforms you can utilize to crowd fund ventures, some of the most popular being KickStarter and Go Fund Me. Make sure you do enough research to identify which platform would best serve your capital raising objectives. The most successful crowd funded endeavors usually offer incentives to donors, and provide solutions that are evident to the average individual or a specific niche.
It’s time to take a “firm” stand
Securing funds from a venture capital (VC) firm is perhaps the most challenging avenue to raising capital. Venture capitalists are strictly in the business of generating 20-30% annual returns on their investments. High failure rates of small businesses cause venture capitalists to become very selective of the companies they chose to invest in. They have to ensure that the company can generate enough returns on their investments. However, if you are in need of more than $500,000 a VC firm is still your best bet. They typically fund projects requiring $500,000 or more at any stage, and are usually industry specific. Therefore, it would be wise to research if a VC firm serves your particular industry.
Beverly Pryce is a partner and lead consultant at MD Burns Nash, a consulting firm that specializes in providing finance and business strategy to Atlanta’s IT community. A core feature of their services is the ability to help startups build solid infrastructures and raise capital.
