Money does grow on trees… sort of
It might shock you to hear that it’s easier to find money to fund your business idea than it is to find an idea. A good idea, that is. There are two kinds of good ideas. The first one is for a small business that will not grow but will sustain the lifestyle you want for yourself: Opening a gift shop on a Hawaiian beach, for example. The second kind of idea is one that will be big. Big in that you can grow into a big player or you can sell to a big player.
A lot of people have ideas, but they don’t dwell on them because people assume startup money is hard to come by. But it’s not. So don’t be shy about moving forward with an idea.
The fastest source for money when you have no money is, of course, your credit card. Almost forty percent of small businesses owners started their company with credit cards. If you can get one of those 0% interest offers, the credit card option starts looking particularly good. But if you lose the money, it’s your money. So don't use credit if you can’t afford to pay it back.
Angel investors are constantly looking to invest in companies that will grow big. If you have this kind of idea there are plenty of angels to choose from. A good place to start is online, looking for people who invest in early stage companies in your market.
The important issues will be finding someone smart and experienced who can help you grow the company to the next stage. In exchange for giving up a percentage of the ownership of your company, you should get solid mentoring as well as money. The network and advice that an angel offers is what separates the amazing ones from the mediocre.
If your business will not be big, then your pool of angels is pretty much limited to people who know you well and want to do you a favor. But there are ways you can structure a deal so that your friends and family feel like it's a decent investment. First, offer to pay an interest rate a little higher than a bank would pay. If that doesn’t work, offer to give equity in the company. Paying a percentage of profits is very cumbersome since you’ll likely have to produce detailed financial statements. So make that an offer of last resort.
By all means, put together a professional presentation for the angels. But keep in mind that on some level, these people come to the table based on their trust and respect for you. And that’s what you are trading on when it comes to early-stage funding. This is especially true if you’ve never started a company before and can’t sell yourself based on your track record.
This is not such bad news, though, because most of you can come up with a list of fifty people who trust you. The list of people who trust you and have money to invest is probably shorter. So divide the list into As, Bs and Cs. The As are people who have a lot of money and a lot of investments. The Bs are financially stable people who would think very, very hard before forking over $25,000. The Cs are people who don't really have the financial resources to invest in your operation, but they might vouch for you to someone they know who does have money. Practice your pitch on your Cs and Bs so that by the time you get to your As you really know what you’re doing.
The most important thing, no matter what kind of business you are pitching, is to not give up early. If there are no investors, you might have a clunker of an idea on your hands. But a little rejection happens to a lot of good ideas. So brace yourself as you look for funding and keep going right past the rejections. You might be a star as an entrepreneur and you’ll never know until you try.