3 Ways to Fund Your Venture
By: Karl R. LaPan, President & CEO, Northeast Indiana Innovation Center
It’s no secret that starting a business takes money. Even the most straightforward business plan requires some cash, or capital—one of the four pillars of entrepreneurial success. There are, however, ways to start a business with limited resources. Here are three strategies:
Reduce your initial financial needs. Be market smart and adaptable. Set milestones and stage your growth. Use your profits from your customer contracts or sales to grow your business. Many innovative companies offer professional services and use the profitability from those services to “moonlight” on developing their products. Depending on the research study you read, the cost of starting a company today ranges from $30,000 to $90,000. Size your financial commitments to your execution and validation of your business model. Work with knowledgeable entrepreneurial support providers like the NIIC to reduce your risks of start-up and increase the likelihood your venture can get off the ground faster and smarter.
Bootstrap. Bootstrapping is a fancy word for self-funding your business without the use of third party investment. Most small businesses start this way. Aspiring entrepreneurs might transition to entrepreneurship while working a day job, to ease into the risks and rewards that come with self-employment. Instead of going full-throttle, you might consider testing your minimum viable product to gauge demand. Once you start bringing money in the door you can invest in yourself, and piecemeal the business to get it to where you need it to be your sole source of income. Breaking the self-employment barrier to employing other people is not easy but transitioning from a lifestyle company to a growth-oriented venture has enormous dividends for the entrepreneur and the community. Consider that 80% of all US small businesses are sole proprietors (do not grow beyond the owner). This segment is growing too!
Seek other people’s money. You may not have the cash, but those in your circle might. Don’t rule out the possibility of getting help from friends and family. You also might look to angel investors, who are wealthy individuals who back initial business ideas. Similarly, venture capitalists — typically corporations— tend to scout businesses that are already launched. However, the vast majority of ideas and start-ups will not obtain VC funding. In fact, only 1-2% might be considered. Angel investing isn’t easy either. Less than 20% of those early stage companies seeking angel capital will actually receive any. Be sure to seek smart money – an angel with financial resources and some expertise to help your business (a large rolodex or network, domain expertise or access to services to lower your burn rate.) Crowd funding, through venues like Kickstarter, is a social way to fundraise. Don’t overlook the Small Business Administration (SBA) loan programs operated in conjunction with local community banks. They have loans and grants available to qualified businesses. Last, don’t forget about your local bank. A line of credit, working capital loan, equipment purchase might be a possibility if your finances are in order (this means you have some assets to pledge and a high credit score).
Capital is a major obstacle for many entrepreneurs, but it shouldn’t be an impossible hurdle. We at the Innovation Center have resources available, like the Get Funded programs, to help you navigate the choppy waters of financing.
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