Don’t know where to start? There are various ways to raise capital from outside investors. The first place to start is with the founders. If it’s only you, invest what you can — just make sure you put enough money aside for your monthly expenses (up to 4-6 months is a safe amount) and always keep an emergency fund for unforeseen events.
Other options for funding include: friends and family, grants, loans, crowdfunding, angel investors, and pitch competitions. Be committed to your plans. People are more likely to contribute when they see that you are dedicated and that you take your business seriously.
Friends and Family
Ask your family and friends to invest. It may help to present your pitch deck to them so that they can see exactly what your business is all about. If you start your business with the help of family and friends, you have two options: 1) Accept the investment, and give them equity in your business or 2) take a loan from them and repay with interest at an agreed upon later date. Have a legal document in place with all the provisions written and clearly detailed.
Small Business Grant
A small business grant is monetary funding from an organization, including the government, that is given to help small businesses and nonprofits start and/or grow. Unlike loans, you don’t have to pay this money back. There’s no collateral that you’re required to put up, and you won’t need to pay fees (with the exception of an application fee). If you do receive a small business grant, it’s imperative that you meet the funder’s accounting and reporting guidelines, and that you spend the money only on what the grant covers.
There are small business grants available for a variety of business types, and that target owners based on race, gender, industry, age, etc. For some, it may be helpful to attend a grant-writing class, conference, or workshop that is offered online or in-person. Another option is to hire an experienced grant writer to help create, organize, and write a grant proposal. Samples of grant submissions can be found online.
Crowdfunding is a way to generate funds by presenting a product/prototype/service that gives potential donors the details of how you’ve created a solution to a problem. It is much easier for potential donors to watch a video about your product/service, as opposed to having to read a wordy description. A crowdfunding campaign is fairly easy to start — make a video of how your product or service works, ask for the exact amount of money that you need, and explain what the funds will pay for. Your funds should be only for building your product and business – not bonuses, vacations, or needs outside of business. Shop around for the crowdfunding site that best suits you. Different sites have different rules – especially around money generated through your campaign.
Angel investors are private investors who invest during the seed funding/early stage. They are called ‘angels’ because the risk of investing in a new company is higher than usual. Seeking an angel investor for your company is not easy, but if you have the right connections, it can be. You can find these ‘angels’ through your personal/business network, on social media websites, at your local Chamber of Commerce, and at small business events. Be sure to be clear about what each investor should expect in return for their investment. Put everything in writing.
Have you seen the reality show Shark Tank? On this show, people with business ventures who need funding make pitches to investors with the understanding that said investor will own a piece of their company as a return. While you can apply to be featured on the show, you can also pitch at events hosted by your local Chamber of Commerce. Contact your local Chamber of Commerce for announcements of these events. Pitching competitions are perfect for those who are also looking to get feedback about their business idea, in addition to funding. Be prepared to answer tough questions about your business’ operation. Check out the show Shark Tank to get a better idea of how a pitch goes.