Raising money for your new startup isn’t as difficult as you may think.
However getting the right source of funding is slightly more complex. Each source of capital has its own unique advantages and disadvantages.
Here are 8 of the most reliable sources when it comes to raising money for your startup.
8 Ways To Raise Capital For Your Startup
1 – Crowd funding
While crowdfunding is still in its infancy as a means of raising money for your startup its popularity is rapidly increasing. Crowd funding takes it name from the fact that your project is funded by the public using their own personal funds. To start with, you propose the idea that you wish to see funded. People can then choose how much or how little they want to give you. Most crowdfunding sites currently use a reward base model where people who invest in a new business venture are given some form of reward such as the product that is going to be produced. However changes to US law will soon allow equity based crowdfunding.
Some of the best crowdfunding websites for small businesses include Kickstarter, Indiegogo, and Fundable.
2 – Angel Investing
After entrepreneurs have made their fortune many of them look to invest their funds back into startup businesses. These are known as angel investors. Some of the worlds largest businesses including Google, Facebook, Skype and Twitter have received angel investing.
The benefits of receiving angel investment go beyond the purely financial. The advice and connections that a good angel investor can offer can be equally as valuable. Angel investors are willing to take on the risk of a brand new startup. There are a number of angel investing networks which connect entrepreneurs and investors. Some of the biggest networks include Golden Seeds, Tech Coast Angels and Investors Circle.
3 – Family and Friends
Your family and friends want to see you succeed and may even want a stake in your potential goldmine for themselves. However using family and friends as a source of raising money can be problematic. It can create a strain that can ruin personal relationships. It is also worth remembering that over 50% of small businesses fail in their first five years often because of factors completely outside of the control of the owners. Make sure that you are not borrowing money that they can’t afford to lose. Put any lending agreement in writing with the terms clearly laid out even if it is a “friendly” loan.
A number of successful businesses have started out with a loan from friends and family, so don’t shoot this idea down, just be mindful about the pitfalls and burdens that may come about in turbulent times. The risk is high but so is the reward when you are able to grow not only your own wealth but friends and families along the way.
4 – Credit Cards
Credit cards should be viewed as a temporary measure between getting your business started and obtaining other financing such as a bank loan. Given the hefty 10 – 20% plus interest rates on many credit cards they are generally not a good source of loan term capital. That said credit cards have been used by many entrepreneurs when their was no other options available. In the mid 1990s the founders of Google initially funded the company using credit cards. While the founders maxed out their credit cards they used the funds wisely, purchasing second-hand computers instead of new ones and open source software instead of off the shelf.
5 – Bank Financing
One of the most common ways that people raise capital for their small business is through a bank loan. Your banker may request that you have your loan guaranteed by the Small Business Association before approval. The SBA is a government agency who will guarantee up to 80% of the value of the loan for applicants which meet their criteria. Alternatively you may be able to offer some other form of security such as your home to get your loan approved.
6 – Second Mortgage
Second mortgages are also referred to as home equity lines of credit. These loans tap into the locked up equity you may have in your home. To calculate how much you may be able to borrow for a second mortgage take the value of your home and deduct the value of any outstanding mortgage. Be aware some lenders may only lend only up to 70 – 80% of the fair value of the home. One of the biggest advantages of using a second mortgage is that the interest rate tends to be lower than with others form of financing. This is because the bank knows it can always recover the value of the loan by foreclosing on your property if you are not able to meet your interest payments.
7 – Venture Capital
Venture capitalists aim to invest in early stage businesses with high growth potential. Traditionally venture capitalists received equity in the business in exchange for funding it. However these days they typically demand a mixture of equity and debt financing.
The venture capital business is based on the idea of a few big wins making up for a lot of poor performers. In fact approximately 3 out of 4 businesses which receive venture capital fail. Because of this venture capitalists look for businesses which have a lot of growth potential. If the market for your business is more modest you may need to look elsewhere for funding.
8 – Business Partner
You might not have the money to get your business started but maybe you know someone who does. Of the Inc top 500 businesses, 28% received seed funding from a co-founder.
When selecting a partner for your business you need to make sure that their own goals for the business are aligned with yours. As a business partner they will have control over the direction of the business. It is also a good idea to have a buy out agreement in place in case of a breakdown in the business relationship. This should stipulate that the other partner must agree to a proposed buyout within a set time frame or buyout the other partner themselves.
Finally it is worthwhile looking at the lesson of Facebook. CEO and founder Mark Zuckerberg had seen how earlier dot com companies had been willing to give away almost all of their equity to venture capitalists in order to get funded. He wasn’t going to make the same mistake and never gave up equity lightly. His 28.1% stake is now worth $14.9 billion. Be careful to negotiate your own financing terms with equal tenacity even when all you have is a vision for the future. The difference may one day be worth millions.
6 Guy Kawasaki Lessons About Pitching Your Startup To An Investor
Guy Kawasaki is a Silicon Valley venture capitalist, bestselling author, and Apple Fellow. He was one of the Apple employees originally responsible for marketing the Macintosh in 1984.
“You say: “I have lots of great ideas, but I have trouble figuring out which one to try. Let me tell you about a couple.” Investor thinks: “I want to know which idea you’re going to kill yourself trying to make successful, not which ideas have crossed your idle mind.”” – Guy Kawasaki
“Here’s what you should say [to investor]: “This is what my company does…” It’s that simple. What you’re trying to do is get potential investors to fantasize about how your product or service will make a boatload of money. They can’t fantasize if they don’t know what you do.” – Guy Kawasaki
“You say: “I love to think of new ways to solve problems.” Investor thinks: “Is this a high-school science fair?””- Guy Kawasaki
“You say: “My goal is to build a world-class company.” Investor thinks: “How about you ship and sell the first copy before we talk about world-class anything?”” – Guy Kawasaki
“You say: “I don’t know much about your firm, but I thought I’d contact you anyway.” Investor thinks: “You’re a lazy idiot–why are you wasting my time?”” – Guy Kawasaki
“You say: “The last time I contacted you, I…” Investor thinks: “I’m going to fire my secretary for putting this clown on my calendar again.”” – Guy Kawasaki
Article By: Jonathan Savage & Joel Brown | Addicted2Success.com
You Are The Problem With Your Business
A great way to screw up your company is to get into the habit of blaming your suppliers, the market, your staff or your product for your failures.
I recently heard a story of a business that had set up a website. They sold various products and services focusing on helping people with psychological issues. The business owner was smart. The product solved a problem.
Unfortunately, the company was making almost no money. They’d hired someone to help them with their digital marketing and it wasn’t working.
Plenty of traffic was coming to the site, users were having a look around and then not buying a single thing. Who’s fault was this?
Well, according to the business owner it was the person running their digital marketing. As a result, they wasted approximately eight months marketing a website that couldn’t make any sales. The reason the business was failing according to the owner was because of the keywords that were being targeted in the marketing campaign. This is a horrible excuse.
The reason your business fails is because you’re blaming someone other than yourself. It’s the quickest way to bankruptcy. Don’t do that.
Your company is a reflection of you.
It took me a long time to figure out that a company is a reflection of its founder.
One of the businesses I had, had a toxic culture and a bunch of people that were rude to customers, arrogant and not nice people. That was a reflection of exactly who I was at the time.
The company was reflecting the flaws of my own life and what I refused to admit.
In the case of the business owner above, what was obvious is that they were good at telling lies to themselves. It was easy not to change as a business owner and insist that the change needed was nothing to do with their vision.
The issue of their company was not the digital marketing strategy but their lack of understanding around what their customer wanted.
The thought that their products were too complicated, not solving a real problem or priced incorrectly was an admission of guilt they wanted no part in. Hence the eventual demise of their company.
Take responsibility and it will change.
When you own the business, everything is your fault.
You have the power to solve any problem you choose. It starts with you being brave enough to admit that there’s a problem, and then secondly, being bold enough to insist it’s your fault and that you can change it.
The problems in your business can all be solved. That’s what it took me a very long time to understand. When I changed as a person and faced up to my hidden battle with mental illness that I didn’t want to talk about, the odds turned in my favor.
Had I have not taken responsibility for my mental illness, I would have never become a leader in a business or started another side hustle. I would have been crippled by the big, bad world that I thought I could control.
Control came from responsibility, and responsibility solved the major problem in my business: me.
Change is a must.
Not with your digital marketing strategy.
Not with hiring new people.
Not with developing a new product.
“Changing yourself is the *must* because YOU attract the problems and the solutions into your business”
You can’t find the solutions or stop the never-ending problems until you stop the cause of it all: you. You’re the problem with your business. The good news is that it’s entirely within your control to fix.
Not the business.
The Different Ways of Measuring the Success of Your Start-Up
You’ve probably heard people use the term “unicorn” in a business context. This means a privately held start-up whose value has grown to at least one billion American dollars. Think Airbnb, Uber, and so forth. There is no doubt that some start-ups have been major financial successes. And many smaller-scale start-ups are doing great as well, working hard and turning a steady profit. But that begs the question of whether finances are the only way to measure the success of a start-up. As it turns out, they might not be. At least, not always and not on their own.
How to Evaluate Success
As anyone who’s been involved with start-ups knows, you need a fair amount of flexibility to do well in this environment. Take the division of labour for example – rather than strict roles, you’ll often see everyone do a bit of everything. The same principle extends to measuring success. It can be vague and mean different things to different people, and it can change over time.
But amongst all that vagueness, one thing has become clear. Predicting the success of a start-up is very difficult for external observers. As a matter of fact, it’s often impossible. Therefore, in order to evaluate how successful a start-up has truly been, we need to know the goals of its founder(s).
“Success means we go to sleep at night knowing that our talents and abilities were used in a way that served others.” – Marianne Williamson
When people think about business, it’s common to boil matters down to the finances. And it certainly is possible to use numbers to measure and predict the performance of a start-up business. Net worth, gross margin, customer acquisition cost – these can all be indicators of success. But, a start-up can post impressive numbers for a while, perhaps even attract large investors, and still shut down in the end. So does this make it a failure?
The answer to this depends. If the founders wanted to start a lasting business, then yes, they failed to meet their goal. However, that isn’t always the case. If they were looking for a short-term solution and came out with more money than they had coming in, a closed-down start-up needn’t be unsuccessful. It can actually be the opposite of that.
So, looking at the figures isn’t enough, and there are different perspectives to consider. When they start planning their business venture, start-up founders may not have any particular numbers in mind when it comes to profit. Instead, they can judge their success according to some of the following criteria.
1. Happy Customers and Solving Problems
The story of a start-up often begins with a problem. The desire to help people overcome a specific issue can be the spark which ignites the creation of an entire business. And in the end, that may be all that matters to the founders.
This is closely connected to the happiness of the customers. If the resulting product or service has made people happy by helping them solve a problem, that is all that may be required for a start-up to be a success. Now, no business wants unsatisfied customers. But in cases like this, happy customers aren’t the way toward the ultimate goal – they are that goal.
In other words, some start-up founders don’t just use financial reports to measure how much they’ve achieved. To them, the one metric which stands above all others is the quantity of positive feedback they’ve received. The main area of focus is customers who use the start-up’s products or services to solve a problem they were having.
Every start-up founder likes doing well in terms of revenue. But for some of these entrepreneurs, the profit is merely a side effect of what they actually set out to do – impact the world in a positive manner. You can see an example of this line of thought with Elon Musk. He said that back in college, he had wanted to be a part of things that could end up changing the world. The continuation of this philosophy is evident in his electric cars (which aim to reduce pollution) and the SpaceX program (which strives to break down some of the barriers of space exploration).
In both cases, the furthering of mankind is the ultimate goal. Many other start-up founders feel the same, even if they have smaller goals in mind. To these people, there is no greater proof of success than if their company has had a positive impact on society or even a small segment of it. In their view, to make a difference is to succeed.
“The only limit to your impact is your imagination and commitment.” – Tony Robbins
For some, starting up their own business is less about getting rich and more about gaining the freedom to conduct their business the way they want to. In this case, financial success is just a means to an end. The endgame is to be your own boss.
The fact is, some people don’t do well when they’re constantly receiving orders. They are simply hardwired to be free thinkers and they require an environment that allows them to do things in their own way.
Being in a position where you hold all the cards can be exhilarating. The knowledge that your decisions are final is very empowering, and many strive for such freedom. If a start-up can allow such people to go from being a regular employee to being in charge of making all the decisions, then it has already achieved all the success that it needs to.
4. Time for Friends and Family
As many people know all too well, a job can easily turn into the focal point of your daily life. Instead of being a way to support your lifestyle, your work dominates your time. And when that happens, the time you have to dedicate to your loved ones becomes scarce. Combating this is precisely what some have in mind when they decide to take the leap and start their own business.
Now, running your own company is no mean feat and it will require a lot of effort. But the beginning is the most time-consuming part of the process. Later on, it can be possible to create a system which leaves you with a lot more time on your hands. You can spend this time with your significant other, your children, or your friends. A start-up which gives you this opportunity is perhaps the greatest success of all.
A start-up is an extension of its founders and so are that company’s goals. Some entrepreneurs are in it for the profit, but not all of them. In the end, there is no single way to measure the success of a start-up. It all comes down to the specific aims of those who established it. But if the founders can end their day on a happy note, then the venture is a success even if it doesn’t fit some standard definition of the term.
The Problem Is Not Your Website Or Your Product.
I spend a lot of my time talking to business owners. They focus on their product, their marketing channels and trying to make more profit.
I met one such business owner who was in the plastic surgery business. Their product (boob jobs and nose jobs) was not working. Their website sucked and people clicked off as soon as they visited it.
People would call their office, get put on hold, listen to the on hold message and hang up.
This business didn’t seem all that special. I’ve talked to many businesses and didn’t think for a microsecond that a plastic surgery clinic could ever teach me anything valuable.
I’ve been to Hollywood on holidays and the issues of body image are all too apparent to me. Anyway, this post is not about body image.
I ended up losing this business as a customer — not that I would ever have sold anything to them if it were up to me. I sat down one afternoon and thought about why we no longer did business with them.
That’s when I realized it’s not about your product or your website. All the issues with this plastic surgery clinic and a lot of other businesses I’ve dealt with stem from one thing. Let me explain in more detail.
Your Google Reviews say you’re an piece of work.
I looked up their Google Reviews and their customers said they were assholes.
They spoke down to clients, they didn’t deliver their clients what they wanted, they argued with their staff in front of customers and they treated people like they were nothing more than a dollar sign.
All I had to do was read their Google reviews to see that the problem wasn’t their product or their website.
Your clients tell you every day that you suck.
I asked the plastic surgery what their clients said.
Many of their clients told them that their services sucked and they would prefer to go to places like Thailand where they could get a better product at a much lower price.
The business owner made the mistake of thinking it was their product that was the problem and that a new website will tell clients a different message.
That wasn’t it.
You abuse your staff and they consistently leave.
I spoke with many staff that worked for this business.
Every single one of them hated the company and were not afraid to say what they thought of the business owner.
The business owner would sit outside on a nice sunny day and look across the street at all the yachts and the people boarding them.
They’d sit there and think that every lead they got was going to take them one step closer to owning their very own yacht.
“If only I could deliver more boob jobs, maybe I could have one of those,” they thought quietly to themselves hoping that no one else could hear how ridiculous this sounded.
I can remember multiple times being on the phone to the business owner and having one of their staff burst into tears halfway through the call.
The first time it happened I didn’t think much. After the third time, I got the message. During the short time I dealt with this business, people consistently left. If you made it to the six-month mark, you were some sort of hero and would probably be given a free surgery to say thank you for your work and make you feel worse about your own body at the same time.
It was free noses and boobs in return for daily abuse.
The problem still wasn’t the website all the product.
You don’t solve real problems; you solve your own problem.
A good business solves a problem.
That problem typically affects human beings and solving it is how you make money in business. Solving problems can start out with a problem that affects you, but at some point, you’ve got to start solving that same problem for other people/businesses.
This owner of this plastic surgery clinic was only trying to solve their own problem which was making more money to buy fancy items like yachts.
Only solving your own problem is not just selfish but bad business.
Good business is solving a big problem or lots of small problems for entire strangers who you don’t know thus doing something valuable for the human race.
Solving only your problem will make you poor.
The problem still wasn’t their website or product.
Creating more problems.
Everything this business owner sold created more problems.
They’d film videos to purposely make people feel like their body wasn’t perfect.
They’d write articles suggesting that everyone needs botox to feel young.
They’d take photos of men and women who were supposed to be perfect so that young people would dream of looking like them.
Not only was their business not solving a real problem; it was also creating more problems every day that it existed.
If your business creates more problems than it solves, you’re in real trouble.You need to take a long hard look at the business and become obsessed with doing everything you can to change it — and do so damn fast to limit the whirlwind of problems you’re creating behind you.
The heart of the problem.
It’s the business owner.
The business I mentioned will fail. That part is certain. The problem with the business is not the website or the product.
The problem is the business has no heart because the business owner has no heart.
You cannot focus on your own selfish desires, create really bad problems in the world, treat other human beings like garbage and expect to go buy a yacht and live happily ever after. It just doesn’t happen like that.
Whether you are a plastic surgery clinic like the one I described or a solo entrepreneur, the problem with your business is you.
Fix the problem of YOU. You can’t get away with being horrible forever.
Being horrible is bad business.
Being respectful, kind and valuable is the final answer to the problem with your business.
18 Must Read Business Books for Emerging Entrepreneurs and Startups
Reading is both relaxation and training for the mind. Who reads, dives into another world. Learning, entertaining and breaking out of everyday life for a short moment. One could go even so far as to say reading is the second most beautiful thing in the world! Whether it is non-fiction or a novel of all the world’s man has created, the book is the most powerful tool. That is also, why we wanted to find out which business book you should undertake in the new year. (more…)
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