Raising money is one of the greatest challenges startup ownersface as they launch into a life of entrepreneurship. In many cases, startup owners do not know where to turn to obtain funding for their budding businesses. Fortunately, there are many avenues for startup owners who need to raise operating capital. Gabriel Patterson, of Winnipeg, has over two decades of experience in investment banking, and currently runs his own investment firm, Bethmann Lombard Bancorp, in Toronto. Below, he lists 10 great ways to secure funding for your startup.
1) Start close to home with family and friends.
The most common source of capital for startups is friends and family members. If your family and friends are also your investors, make sure that they are aware of the financial risk they are taking. It is also a good idea to link their investment money to your cash flow. These steps can help avoid the potential for damaged relationships if your startup fails to deliver projected results.
2) Contact your local small business administration (SBA).
Your local small business administration is a great resource for entrepreneurs. One of the benefits of working with your SBA is access to their lender matching programs that can connect you with SBA-approved lenders who are a good fit for your business. Additionally, most local SBAs offer loan programs and grants that can give your new business a welcome cash infusion.
3) Connect with potential investors on social media sites.
Social networking sites for entrepreneurs are great channels for connecting with prospective investors in the United States and internationally. You can start by ensuring your LinkedIn profile is updated and reflective of your startup plans. Additionally, you can explore sites such as Meetup, Plaxo, EFactor, and Startup nation that will foster connections with potential investors.
4) Tap into your own resources.
Some new startup owners decide that they wish to self-fund their business by using a modest amount of cash along with the revenue that their business generates. The practice of using personal finances or revenue to fund a business is commonly referred to as bootstrapping. Bootstrapping is typically most effective if startup owners attempt to lower their operating costs by adopting a lean operating strategy and ensuring that they are offering well-validated products prior to officially launching their startup.
5) Explore personal lending companies.
Commonly referred to as peer to peer lending companies, personal lending companies have a network of approved lenders who are interested in loaning money to new business owners. Lending Club and Prosper are two of the most well-known personal lending companies in the United States. Typically, you specify the amount of money that you need for your startup and the lender will share your reason for needing the loan with their network of lenders. In most cases, you repay the loan on a monthly basis and your interest rate will reflect your credit rating.
6) Consider angel investors.
Angel investors usually have a net worth of roughly one million dollars and a yearly income that is greater than $200,000 USD. They use their own money to invest in startups and often belong to a network of angel investors that invests in startups as a group. A great resource to consider is the Angel Capital Association (ACA), which is comprised of over 13,000 members. The ACA can provide you with a comprehensive list of accredited angel investors in your geographical region.
7) Take advantage of crowdfunding.
Crowdfunding has experienced sharp growth as a means of attracting investors for startups. This method showcases your startup and enables members of the public to decide how much money they want to invest in your business. The key to successfully raising money through crowdfunding is to choose an established and reputable crowdfunding site. FitSmallBusiness.com offers a comprehensive list of the 25 best crowdfunding sites to help startup owners navigate through the mushrooming number of crowdfunding sites.
8) Consider corporate venture capital arms.
Two of the top reasons that companies develop corporate venture capital arms is to gain access to new prospective partners and to establish relationships with entrepreneurs. While corporate venture arms sometimes look for specific types of startups to invest in, they tend to target startups with a large financial upside and excellent growth potential. Startups with expansive target markets are also popular choices with this type of investor.
9) Look into business accelerators.
Business accelerator funding is increasing in popularity, especially among startups looking for funding in the range of $25,000. There are many perks associated with business accelerators. Access to mentors and office space is a key benefit of working with a business accelerator such as TechStars and YCombinator. However, startup owners need to be prepared to give business accelerators a stake in their company.
10) Consider a startup incubator.
Much like an incubator found in a neonatal intensive care unit, a startup incubator helps provide a nurturing atmosphere for growth for a budding business in its most vulnerable state. Examples of incubators include schools, companies, or any established organization that is willing to provide cash, office space, or marketing services in exchange for a stake in your company.
The Bottom Line
Your startup’s initial success hinges in great part upon your ability to secure investors to fund your operations. With a plethora of avenues to attract prospective investors and a recent increase in venture capital funds, entrepreneurs have more resources than ever to ensure that they build a stable foundation for their startup. By carefully considering the options above, you can help ensure that you build a stable foundation for success for your new business.
About:Gabriel Patterson, of Winnipeg, is the creator and principal of Bethmann Lombard Bancorp and has directed the firm since 2005. As a masterful investment banker, Mr. Patterson has become an expert in securities, real estate, offshore tax planning and Islamic finance. He serves clients on a global scale and has done business in Asia, Europe, and Latin America.
Settling in Toronto, Gabriel Patterson advises both public and private entities on a variety of tactical and financial initiatives with an emphasis on mergers and acquisitions, raising equity, hybrid-equity, and debt capital. As the chairman of Bethmann Lombard Bancorp, he directs the firm’s initiatives and also acts as the lead advisor to the company’s major accounts.