For any new business, no matter how good your idea is, you need money to get started. Developing your product or service, creating your prototype, building your network, overhead costs, finding a place to work - it all costs money. Here’s how you can start looking for investors to back your idea and get your business off the ground.
Chambers of Commerce
A local Chamber of Commerce is essentially a business association that helps support businesses directly and by advocating on behalf of business to government. They often provide classes, networking opportunities, and funding support.
Small Business Associations
Similar to a Chamber of Commerce in some ways, but focused on supporting SMEs, Small Business Associations are common in countries and regions across the world. They often have grants, loans and other kinds of funding support for small businesses.
Private Equity Firms
These are considered the most traditional way to get funded - go to a private equity firm and get investment funding with some shares going to the firm. You’ll need an excellent pitch and your best suit. Look for ones in your country, or check out this pretty big list.
Angel Investor Networks
Angels often are either financially successful individuals or firms made up of financially successful individuals that are looking to invest in startups and other new businesses. They generally give mentorship and access to their own professional network or other valuable opportunities, in addition to funding. Angels will usually do this in exchange for a stake in your company. You can check out the Australian Angel Investment Network, for example.
Crowdsourcing funds online
There are tons of businesses that tried going to traditional investors and were either hit with such big fees that they couldn’t afford one, or were outright rejected because they were too risky with brand new ideas.
But they said, hey, banks and venture capital funds aren’t the only ones that have money. That’s why starting in 2009, the idea of crowdsourcing funding has taken off.
Basically, it means that any random person can lend you money, and you can collect smaller amounts from lots of different everyday people rather than from a traditional lender or investor. Because no one person is giving you more than a little bit at a time, they’re not taking on a huge amount of risk (as opposed to a bank lending you $50,000). Here are some places to get started with crowdsourcing.
This is one of the most prominent crowdsourcing websites, and you’ll notice that to do well on Kickstarter you need a good idea, well-written text and a really good product video. Kickstarter videos show your project, tell your story, and send a message about what it is you’re trying to achieve. You can launch a Kickstarter campaign for a limited amount of time (a month, for example), and then do as much of a PR push as you can.
One of the ways Kickstarter helps bring in money is by offering various perks for pledges. For people who give you $5, they’ll get a sticker; for $20 they’ll get a t-shirt; for $50 they’ll get a small product of yours, for $1000 they’ll get all of that plus an exclusive trip visit you where you make your product, for example. By offering various pledge levels, you can encourage people with vastly different investment interests to all pitch in. To use Kickstarter, you have to have a specific project, rather than a vague “I’m starting a business”.
A good example is Pedal Forward, a company that makes sustainable bamboo bicycles and was funded through Kickstarter. They clearly demonstrate the value of their product, their success so far, how you can contribute, what the money goes to, and what the bigger picture is.
Here’s the catch. If you don’t raise all of your goal, you don’t get any of it. Kickstarter will also take 5% of the amount raised, plus payment processing fees.
Indiegogo is a very similar concept to Kickstarter, with a dedicated equity investment feature. It’s open to new businesses in any industry, and it doesn’t have an all-or-nothing structure, though it takes a higher fee if you don’t reach your goal.
This one’s more exclusively used by venture capitalists and Silicon Valley investor types. It means you might have the ability to raise higher amounts, and is pretty competitive when it comes to innovative companies.
SeedInvest is a crowdfunding site that heavily vets the companies that get listed. That means that if you make the cut, investors feel you’re lower risk and might be more keen to give you a shot. It’s pretty exclusively for startups in tech and entrepreneurship, though there is some flexibility of industry.
Startups.co is an online platform for startups of all types, and has bundled together education, mentorship, funding, business planning, customers and admin assistance in one entity. Their funding platform is called Fundable, and connects startups with interested investors online.
Join an accelerator programme
Accelerators and incubators are third-party companies, often also paired with co-working spaces, that are focused on providing business services for companies that are just starting up. While an incubator is for seedling stages - helping you network, develop a prototype and business plan, learn the ropes of the industry, etc. - accelerator programmes are meant to help you launch to a fully-fledged business.
They often are for set periods of time, such as a three month intense in-person seminar, in which you’ll work directly with a mentor, angel investors, and other startups to make the magic happen. Accelerators can be a great way to get both funding and mentorship, but you’ll need to have already proven your worth a bit to get into one.
For Social Enterprises and Charities
If you’re starting a social enterprise or a not-for-profit company, you might have extra sources of funding available.
Corporate foundations, impact investors, and dedicated socially-oriented funding sites like BuzzBnk, CAF Venturesome, Social and Sustainable Capital and Bridges Ventures are looking to fund companies that have both a social and a financial bottom line. Find out more about how social enterprises work here.
Friends and family
People have been starting businesses through funding from their personal networks for centuries, and it remains true today. 35% of aspiring entrepreneurs use their personal savings to start their business, and 15% get help from personal networks like family and close friends. The advantage of using your own money, and money from your family and friends, is that you don’t have strict repayment schedules or high interest rates, nor are you giving away a big stake of your company. The reality is that many people who can access personal finance do to start their business.
But there are definite disadvantages if your business doesn’t make it, or isn’t as successful as you predicted. You no longer have the security of personal savings to get back on your feet if your business fails, and you might damage your relationship with friends and family who’ve lent you money.
Friends and family are still a vitally important source of PR and advertising though. Especially if you’re using crowdfunding platforms, your personal networks are a major first step in getting the word out that your business is launching, and connections you make through your personal networks can lead to valuable clients and partners, or other business opportunities in the future.
We can help you get your new business up and running
We’re e-commerce website experts, meaning we can help you create a beautiful website that puts you on your best foot to pitch to investors. Having a website to direct potential investors and new customers to is as important as your elevator pitch -- and we’re here to help. Get in touch with Elkfox today.