Small Business Funding and Investors

Funding your company is almost always difficult. Fortunately there are many options to help you fund your company. Investors are one such option. There are a number of different types of investors and investments.

Self-funding or Friends and Family Funding

This is the planning and product-building stage when professional investors might be too hesitant to invest in a venture that is too new. This stage is traditionally called the friends and family stage, but many people do not like that name because it is often NOT a good idea to take money from your family and involve them in your business. Many people choose to put a little bit of their own money into the business by saving up, or working while they get the business up and running. In fact, even once the businesses grow, many businesses just do not fit the model of a type of business that can take venture funding. So other than funding from your own revenues, for many businesses, funding it on your own or with the help of people you know may be the only option for a very long time.

For extra help to start your business, check out our business courses and business coaching.

Seed Stage Funding

Seed stage investments are typically made by professional investors and they can range from $50,000 - $750,000 depending on many factors. To get a seed stage investment, you typically need to demonstrate some type of growth of your product in the marketplace, and be able to target a large market.

Angel Stage Investors

This kind of investment has lots of overlap with seed stage investing, both in the types of investors who invest at this stage and the amounts of money that is put in. The name angel investment does hint at slightly more company maturity.

Series A, B and C Round Investors and Venture Capital

There is a lot of talk of raising venture money, but the truth is that very few companies can ever even be considered for this type of an investment. Venture capitalists require steady and phenomenal growth, a gigantic market after which your company is going, and a slew of other factors. Most companies never qualify for venture money and that is not a bad thing. Raising venture capital can hurt the company because it limits the options you have as a company. The venture capitalists want growth and to shoot big. That might sound nice, but their money often comes with many unneeded pressures that can do considerable damage to your company.

Other Ways To Fund Your Company

One of the best ways to fund your company is through your own revenue. If you have a way to get revenue from clients, you can spend a part of that revenue trying to get more paying clients. Otherwise you are dependent on free sources of customers that can dry up or change direction. That is why companies need to have a business model and make money from clients. If you do, you can be more certain that you will have resources with which to get more customers and grow your business that way.

Try Kickstarter

Many ideas can be funded through kickstarter.com which is a free crowd-funding site for new and exciting ideas. It is not necessarily meant to fund businesses, but many businesses have been able to raise significant amounts of money on that site, so it is definitely an option to explore.

Where You Can Go Wrong

1) Many people want investment too early. There is a large number of things wrong with that. First of all, the earlier you are, the least likely you will get your business funded. Most of the time when people try to get an investment for their company at a too-early stage, they just end up wasting their time which could be better spent on figuring out how to actually grow your company.

2) Another problem with seeking investment too early, is that even in the unlikely event that an investment can be secured, the deal will probably favor the investor and the entrepreneur will get very poor deal terms and lose a larger portion of ownership.

3) Be careful of bad investors, or taking money from someone who may not be a good fit for the company you are trying to grow.

When Is a Good Time To Seek Investment

There are many conflicting theories on when to get investment. Many smart people suggest taking the money whenever you can get it because you never know when the economy can change for the worse.

Another theory suggests that you should seek investment when you have a proven company model with market traction. One way to understand that stage is when you are seeing that your target consumers are seeing your company as a good choice and your company is experiencing growth based on general market acceptance of your product or service.

Loans and Grants

Other ways to fund your company are through raising funds through small business loans and grants. They each have their difficulties. They tend to take a long time. They also tend to have an overall low chance of success, and they just like getting money from a professional investor, the money that comes from loans or grants also comes with its own strings attached. Additionally, depending on the source of the money and the process of getting it, there may be high legal fees or taxes that come out of the investment, loan or a grant. Additionally, techniques for raising money through donations are improving. Additionally, depending on the source of the money and the process of getting it, there may be high legal fees or taxes that come out of the investment, loan or a grant. With that in mind, it may be wise to research and obtain a good internet tax prep system to account for this. Crowdfunding now offers a great way to raise money by gathering many small donations. Learn more about raising money through donations and crowdfunding here.

If you can, try to get as far as you can with your company without seeking outside funds. It is very difficult to run a company and live life on a minimal budget, but money is never as good as it seems either.

One way to help yourself financially is to have a cost-effective business that does not require too much money to get started. Additionally, try to think through a viable business model which can help your company bring in revenue sooner than later so that you would be forced to rely on outside forces less than you would if your company struggled financially.

Here are some tips on how to get small business grants.

Here are some tips on how to get small business loans.

And here are some tips on how to raise money via donations and crowdfunding.

Other Ways To Raise Money

Take a look at our article that gives an overview of the four ways to raise money via donations, grants, investments, or loans in our article titled fundraising ideas. Additionally, take a look at some creative and non-traditional ways to raise money in case the traditional ways to raise money do not work for you, in our creative fundraising ideas article for a bit of inspiration and actionable fundraising techniques you can try.

Further Resources For Fundraising

One resource is Sba.gov.

Article by Alex Genadinik