Have a great idea? Many people see opportunities, but don’t know how to get started. Often new businesses fail because the owners underestimate how much it will cost to get through the first months. For a start-up, your goal should be to lose as little money as possible.
Different businesses will have different costs. It’s always better if you can start small and use your own money. For example, Apple Computer, Inc. and Amazon.com both began in the owners’ garages. It could be that all you need is a good website. Get a cost estimate for everything and plan a budget. Also, remember that there will always be more costs than you expect. It’s possible to get start-up money from something like a home equity loan, but beware of large debts. You’ll still have to pay the loan back, even if the business fails.
Once you have something successful started and want to expand, then you may need investors to provide capital, usually in return for part ownership or equity in the business. Always get good legal advice in setting up a contract for ownership equity or convertible debt to safeguard your own control of the business. Try to predict what could go wrong when setting up a structure like a partnership or corporation and provide for a solution when you set up the initial contracts.
An angel investor is an individual or group of investors, usually organized and seeking good investments. You might find a local group in your city, but angel investors are also easily locatable through an Internet search. Seed money is small amounts of capital that will fund a small business or start-up, and venture capital is a larger investment with more complex contracts. Seed money is usually provided before the business is really underway, but to qualify for venture capital you’ll need to show a working business plan and a high-potential, salable product that will ensure the investors get a good return on their investment.
Venture capitalists want to see your product and your performance record. Try to strike up a personal relationship with investors who have expertise in your business by networking through personal contacts, email or blogs; they may help you with advice as well as money. If you’re trying to raise a large amount of capital, you may have to approach more than one venture capital group, but after you’ve received capital from one investor, then you become more attractive to others.
To shop for venture capital, you’ll need a polished presentation that explains your company and your product, your marketing plans, how much money you need, and when the investors are likely to see a return.
Not all requests for venture capital will succeed, but that doesn’t mean you should give up if you’re refused. If you have a good plan and expect to be successful, then you should look at your presentation and try again. You’ll get more effective with practice.