There is an entrepreneur in all of us. There is not, however, a financial advisor in all of us. As a result, we sometimes have no idea how to raise capital to support our visions for our businesses. Luckily for us, it’s never too late to learn where to find that capital. For many of us, it’s practically waiting to be collected.
And, no, we’re not necessarily joking there.
So where do you begin your search for your capital? By first determining how much money you need to keep things running.
How Much Capital Do You Need?
Before you even start thinking about how to raise capital, you need to know roughly how much you need. This information will help you determine where you want to get your funding from.
Unfortunately, though, we can’t tell you exactly how much you’ll need. The amount depends entirely on your business’s structure and goals.
If, for instance, you need a workspace, you’ll have to put money towards renting that space. You’ll also need money to pay any employees you have and purchase and maintain any equipment you need.
Needless to say, some business ventures will be cheaper than others. In any case, you’ll need to sit down and work out the numbers.
How To Raise Capital
One you’ve determined how much capital you need, you can start looking for that funding. As you hunt for money, you’ll be surprised by where you end up finding it! Let’s take a look at some of the sources of capital you can consider.
Technically speaking, telling you to dip into your personal savings isn’t exactly teaching you how to raise capital. Still, if you have some cash that you can put towards your business ventures, doing so would be wise. You don’t want to incur debt if you don’t have to.
If you don’t have the cash, you might also rely on credit. Admittedly, doing so isn’t ideal, and it shouldn’t be taken lightly. Using credit does, though, allow you to run your business without dealing with investors who might have a different vision for your company.
Friends & Family
Most of us don’t have millionaires or billionaires in our families. Fortunately, it doesn’t take an insanely wealthy person to help fund a startup.
You’d be surprised by the amount of monetary support your friends and family are willing to offer. Even if they can’t provide you thousands of dollars, their tiny donations could amount to enough to help you fund new equipment for your business.
Furthermore, if you really want to learn how to raise capital, you’re going to have to get used to asking for favors. There is no better way to start doing so than by asking those closest to you.
After all, if you can’t even muster up the courage to ask your loved ones for favors, what makes you think that you’ll be able to ask complete strangers for help?
“VC” stands for “venture capitalist,” and VCs manage funds which multiple businesses have contributed to. Small companies can get funding through VCs, but these companies have to show some potential for growth.
VC firms range from small to large in size. The size of a VC firm can determine how much funding you get from that firm. Small firms offer less funding while larger firms typically offer much more capital.
Be careful, however, about how much funding you accept. VCs aren’t, after all, investing in your company out of the goodness of their hearts. They often have target ownership percentages.
That is to say, if you accept too much funding, you’ll risk giving up too much control of your business. You don’t want to do this early in the process because it can greatly affect the direction in which your business goes.
Angels are similar to VCs, but they differ in a few critical ways. Unlike VC firms, Angels are individuals or small groups of individuals that want to invest in small businesses.
As their name might suggest, they tend to be “angelic,” at least in the eyes of small businesses. Their motives for investing in businesses are not completely monetary. They instead invest (partially, of course) based on what some would call sentiment.
In other words, they care about a small business’s commitment to its goals and passion for its work. Do not, though, make the mistake of thinking that angels don’t want to see clearly articulated business plans. A good business plan (and pitch) will always be a part of any plan to raise capital.
A lot of entrepreneurs don’t want to take on debt, and we understand their reservations. Some would even ask if doing so really even answers the question of how to raise capital.
Because, if we’re being truthful, borrowed money is money that you don’t have.
Even so, if you’re serious about your business, you’ll at least consider taking out a loan or two.
There are several ways you can go about securing a loan. The most obvious route is through a bank. Needless to say, you’ll need to have an at least halfway decent pitch if you go that route.
You can also go through government agencies such as the Small Business Administration (SBA). The administration helps connect small businesses with lenders who are willing to invest in startups. This route is probably more effective than the traditional path.
In many cases, whether or not people know how to raise capital depends entirely on what they imagine to be possible. Some people can’t, for instance, imagine that they can get money with few strings attached.
Hence the reason some people don’t apply for government grants.
To be fair, government grants are far from a guarantee for most businesses. these grants tend to go towards businesses that provide some service which the government deems essential.
A cancer research laboratory, for example, is probably much more likely to receive a government grant than a neighborhood flower shop.
Despite that fact, don’t be discouraged. You can still apply for grants. Just make sure that you take advantage of some of the other resources on this list.
Development Loan Programs
Development loans, like grants, are completely unheard of by some new entrepreneurs. On their quests to find out how to raise capital, they never think for a second that there are so many special interest programs out there.
These programs often seek to boost some sector of an industry or community. Programs which award loans to women-owned businesses fit this bill. Their ultimate goal might be to encourage more women to become entrepreneurs.
There are programs geared towards other groups as well. There are, for instance, be programs which support minority-owned businesses or businesses which are located in urban areas.
Even if you don’t think your business is eligible for one of these development loans, you should check your eligibility. You might be pleasantly surprised to find that you qualify for at least one.
In all fairness, seeking out corporate accelerator programs might not get you any capital.
Still, there is something to be said for fostering a relationship with a large, reputable company. The tips you’re likely to receive from such a company are doubtless invaluable.
On top of all of those great tips, there is still a chance that the large company you’ve allied yourself with will invest in your startup somewhere down the line. All you have to do is make a good impression on that company while (and before) you participate in the accelerator program.
We might also add that companies don’t offer accelerator programs just to be kind. They benefit from their affiliation with you. Ignoring that fact would not be wise since it is the foundation of your business dealings with these companies.
If you had asked someone how to raise capital 50 years ago, crowdfunding might not have been on that person’s list. Times, however, have changed. The internet provides enough visibility for many people to have successful crowdfunding campaigns.
You might think that crowdfunding won’t work for you, but don’t count yourself out. People have crowdfunded everything from smart gardens to films. There is now even a way to crowdfund legal proceedings.
Of course, crowdfunding is very unlike securing loans or grants. Lenders are looking at hard facts before they hand out money. People who contribute to crowdfunding campaigns usually do so for more sentimental reasons.
Consequently, you’re going to have to learn how to evoke the right emotions from the right people if you want to successfully crowdfund.
A Few Words of Encouragement
Now that you have some idea about how to raise capital, we just want to give some needed words of encouragement. We’ve made the process of securing capital seem easy, but we don’t want you to think that it truly is as easy as it looks.
You’re going to be turned down by more investors than you count. You’ll be passed over for grants on some occasions. You’re going to hear the word “no” too often.
Despite those things, if you’re persistent, you’ll eventually get the funding you so desperately need, especially if you believe in your business and what it stands for.
For those of you who have already received some funding for your business, please share your success stories in the comment section below. Your fellow entrepreneurs would appreciate it.
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Leeann McDonald says
Great guide you have here. This will certainly get the ball rolling for anyone looking for that investment.
Harrison Garcia says
If I had to raise capital for my business, the first thing I would do is find a Kickstarter campaign that was successful and copy it all the way to the letter.
Chris Buckley says
I think that most companies or startups would go with asking family members first because they are easier to talk to?
Michel Wood says
I am right to assume that you are not likely to get “VC” funding right out of the gate? If you have to prove that you are in a growth stage, how can you do that as a startup?
Randy Orr says
This is a great write up and a good guide. I am wondering if I have an idea, where do I really start? Just an idea, no other plan. I think there is a lot more to it than it seems.
Aline Libby says
Do you think it is easier to ask a stranger for money, or your own grandma?
Robert Earnest says
I wonder sometimes about how the money comes in for some of these places. How many times are they turned away before a VC comes along with the money? Sometimes it seems that startups are starting up very quickly, but do not think that is the case, right?
Leroy Lopez says
I wonder about this as well. Surly most of the startups are not getting funded on the first meeting they have!