A Dream Without a Dime
In this entry we will discuss ways one can fund a startup.
How many times have you thought to yourself, “If only I didn’t have to worry about paying my bills, I’d quit my job and start a business.” The hard reality that stops most people cold in their tracks from realizing their dream of starting a business is bills. How will I pay my mortgage or rent? How will I pay the electric or gas bill? Where will the money for food come from? The questions are endless. There always seems to be something you need, and at times want, that requires cold hard cash. I’m sure you have heard the old adage, it takes money to make money. Well, in many regards this is true, but it’s not the whole story. It takes a special kind of person who is willing to take a giant leap out of their comfort zone and trust that things will eventually work out with their startup. Someone with a little bit of faith, luck, patience, perseverance and not afraid to take some risks.
So, if you think that you have the gumption, let’s discuss a few ways to fund your startup. The first way to fund a startup is self-funding. Self-funding is pretty self-explanatory. The most responsible way to self-fund would be to plan far enough in advance that you are able to bank some extra cash that can carry you and your bills through the first one to two years of your business. I know you are thinking that this is an impossible task, but I would urge you to sit down and plan a very strict budget focusing primarily on things you absolutely need instead of the more comfort associated wants list before dismissing the notion. I know you want that double shot of espresso every morning from your favorite coffee shop, but do you really need it? Other ways to skim down the financial burden is to consider giving up the home cable, phone and internet bills. Most cell phone plans these days allow you to piggy-back your data from your cell to your laptop giving you the freedom to stay connected from most anywhere. There are other services out there that allow you to create a virtual phone number for your business that will ring to your existing cell phone. If you can’t cut the financial income cord completely, you can always start moonlighting, that is start building your business during the hours you are not required to be at your existing job. If you choose this route, I would advise that you keep it on the down-low. There are many employers that will start questioning your intentions/commitments if they catch wind of your new venture. Some will even go as far as pressuring you to choose one or the other. You don’t need the added stress of dealing with an insecure employer while also trying to build your dream. I am a firm believer in continually trying to grow yourself. If that meant growing out of your current position, so be it. A wonderful resource that may be available in your area is a business incubator. My first business developed in a wonderful local business incubator allowing for the sharing of space, office supplies, phone systems and many other resources to allow the business owner time to focus on the business.
Some less favorable ways of funding a startup, but sometimes necessary, is to use conventional loans and credit cards. There are times that warrant such use for example, you started a business that makes gizmos and gadgets. A client placed an order for 500 gizmos and 2000 gadgets. You do not have enough stock to fulfill such a large order. You need to purchase the raw materials quickly so you purchase them using a credit card. You make the gizmos and gadgets from the raw materials and fulfill the order on time. Your client is happy and you get paid. Immediately pay the credit card off and buy yourself a double shot of espresso as a treat. I personally would only use this method as a last resort. Credit card use can get away from you quickly. Just be smart about it. Many businesses fail from growing too fast and not being able to manage that growth. If you find yourself in that situation it may be best to consult with someone who has experience with managing growth. It may be the difference between fulfilling your dreams versus closing up shop. Another less favorable method of funding a startup is borrowing from friends and family members. It’s one thing to invest and lose your money, it’s a totally different thing to lose someone else’s. As I touched in the last edition, the quickest way to muck up a relationship with a family member or a friend is a business. I don’t recommend it.
Finally, there are outsides sources of funding that are available. These range from crowd-sourcing to venture capitalists. Crowd-sourcing seems to be the new fad as of late. There are several websites out there that allow you to pitch your idea to whomever stumbles upon it. Typically the way these work is you set up a goal dollar amount to fund your project. People can pledge any amount they choose typically incentivized by an offer for an early release of your product. Usually the catch is that if you do not get enough money to meet your goal, none of the pledges happen. It is wise if you choose this route to only ask for the bare minimum to get started. I’ve seen many opportunities go by the way side because the funding goal was set too high. Another funding source is angel investment. Angel investors are typically local people that have monies set aside for investing into startup companies. Typically, angels will ask for a small portion of your company in exchange for their capital investment. Some angels will even be willing, some insist, to help in getting the business off the ground. Just remember though, once you give a portion of your business away, it is hard to get it back. Lastly, there are venture capital firms that can usually bring larger amounts of cash and experience to a startup. Keep in mind though, once you go down this road, your business will never be the same. VC firms will require much more from you than any of the others listed. They typically want to grow the business very fast, very quickly in order to sell it for a profit. They may even desire to take your business public.
However you decide to approach funding for your startup, just know that there are many options and each option may require different things from you. None of the funding methods are inherently wrong. You may require different methods during the different stages of your business. Ultimately it is up to you to decide whether you wish to shoot for the moon or the stars. I hope you enjoyed this edition of “When the Dust Settles”. Please share it with others that you may think may benefit from this series, and don’t forget to like/follow us on our social media links at the top of the page. Thanks for stopping by.