It takes a lot of inner strength and smarts to start a business. It also takes money, most often by taking out a loan or raising investor capital. While your enthusiasm is building for that great idea of yours and you’re bursting to share it, there are a few things that should be in place before you start to seek funding.
You must have a business plan that gives a summary of what your business is and how it will make money. Your plan should include market research showing the viability of your idea, financial models with an estimated time that you expect the business to become profitable, charts that show projected growth at a few yearly intervals, and testimonials from a prototypical customer. Having an idea of how the money you are asking for will be allocated and what the payoff or incentive for investing will be can go a long way toward attracting financial support. And, certainly, a large amount of trust can be built by giving your early stage investors their money back plus interest.
When an entrepreneur needs capital in order to develop models and prove that the new product or service works is technically the “seed stage.” This is traditionally when friends and family pitch in some money to the entrepreneur’s self-funded war chest (known as boot-strapping), but there are other sources that can be highly lucrative.
- Crowdfunding (collaborative funding via the web) — There are already over 500 website crowdfunding platforms and over $5 billion was raised this way last year. Sites include: crowdfunder.com, fundable.com, microventures.com and seedups.com.
- “Super Angels” — those who invest their own money in a portfolio of startups and are willing to lead multiple rounds.
- Micro venture capital firms (Micro-VCs) – there are currently about 250 of these firms that invest other people’s money in small or seed-stage projects.
- Business accelerators — in exchange for an equity stake in the company, business accelerators like YCombinator and TechStars offer a specific program to startups for a fixed period of time.
- Corporate seed funds — mature companies, including Google and FedEx, offer seed funding to startups that have potential to be good acquisition candidates.
Advances in technology coupled with the popularity of social media have made it much easier for entrepreneurs to get started. These days, only a small amount of capital is needed to build a minimum viable product and then the entrepreneur can get out in the market to test ideas and grow a business. Successful entrepreneurs know that it can be very difficult to get funding as a brand-new venture so try not to get discouraged if you get turned down. Be open to refining your business plan and the right option will come along eventually.
The Lexington business lawyers at Bunch & Brock have more than 35 years of experience helping clients successfully navigate the various stages of business development and we can help you. To get started, or if you have any questions about this topic, call us at 859-254-5522. You can also reach us by filling out this online form.
