Do you have an idea for a business you would like to start? Do you have the necessary capital to get it up and running? If your answer was yes to the first question and no to the second question, you are like so many others before you. Many people think up the perfect product or service to offer to consumers; however, they cannot get the idea off the ground due to a lack of money. When this happens, what do you do? You must secure private equity from outside sources to start the company.
One of the most obvious places to look for capital is from those who love and support you - your friends and family. Do not feel bad about asking Mom and Dad or your best friend to chip in to help you get started. Many people have launched successful businesses using someone else’s dime. You may not like to do it, however, if you want to see your dreams come true, you need to swallow your pride and just ask. After all, at worst all they can say is no.
Before seeking private equity or a business loan from other financial sources, you need to develop a business plan to prove that your idea will work. A detailed business plan with pro-forma financial projections will help you to convince financiers that your business is worth investing in. Once you have the business plan complete, you can proceed to the next step in funding, which may go through a specific form of risk capital - angel investors. An angel investor is someone who is wealthy. These people have been where you are and have made it. They will invest in your business to make money; however, you will come away with so much more than just start-up funds, you will come away with their expertise, knowledge, contacts and advice all of which are invaluable and will help you skyrocket your business beyond your wildest dreams.
In addition, there are other kind of risk capital players out ther - seed funding firms who are kind of like angel investors however; these firms tend to invest into equities in much smaller monetary amounts, thus the word “seed.” Another difference between angel investors and seed funding firms is that seed funding firms are companies not individuals. Therefore, reaching them is somewhat easier than an angel investor. Most seed firms have standardized investment processes however; this may vary from one firm to another.
Another option for funding your business is venture capital (VC) funds. VC firms are companies much like seed funding firms but will invest private capital on a much larger scale averaging at least several million per deal. You should only approach venture capital sources after first trying all other options at your disposal. The terms are tougher with a VC fund. Your chances of VC funding will greatly increase if you have first acquired initial funding form one or more of the above risk capital sources. Although VC funds are active in start-ups, they generally tend to get involved in the latter stages of a start up verses the beginning stages.
Funding your start-up business with private equity will not be as simple as ask and you shall receive and you will probably not receive all of the funds you need form one source nor in one round of proposals. Be prepared for multiple stages of funding process that may start out with Mom and Dad and maybe even a few friends, then move on to an business angel or two, then a seed-funding firm, and finally a venture capital fund.
Although this may seem like a daunting task to begin with, once you get your feet wet and begin your journey, each new step will push you forward to the next and keep you hungry for more. In today’s economy, if you are going to start up a business and keep it going, you are going to have to have an impressive business plan, be tenacious, and simply not take no for an answer.