Pt. 1: How to Get Fundraising for Your Startup Business

 

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#1: Beg and Borrow (But Don’t Steal) 

Many businesses funding efforts require a multi-layer approach. Before you assess the layers that may pertain to your company, you must identify precisely how much capital you’re going to need: 

  • What expenses do you expect to encounter in terms of product development and sales generation?
  • What will it take to arrive at a minimum sellable product and attract customers that are willing to write you checks?
  • What are your business goals, and what costs will be involved in attaining them? 

Once you’ve considered these elements in detail and tallied the numbers at length, you'll have a better idea of your enterprise’s capital needs. With this fundamental piece of information, you can consider the following types of business funding opportunities.


#2: Friends and Family

While many investors and banks may find your startup too risky for their involvement, there could be people in your personal circle that believe in your business and want to have a hand in its success. You're probably going to need anywhere from $50,000 to $575,000 in seed capital, and this is the best place to begin accumulating that money. People like to get in on the ground floor of a venture with great potential, and there are lots of success stories surrounding this option as a formidable funding opportunity. 

However, keep in mind that you're dealing with other people's money once you secure these funds, and you have a responsibility to handle it with care. It's necessary to avoid dangerous spending temptations and ensure that you don't squander the cash entrusted to you. Your friends and family will expect you to work long and hard to protect their money and build a successful business. They'll also want to be apprised of the companies progress and receive regular financial reporting, so be prepared to deliver this transparency.

In addition, you have to be willing to embrace honesty and discretion when developing a fair evaluation of your business. Of course, a business valuation is an imperfect science, but it does require you to look at the company from a very realistic perspective. Suppose you convince your friends and family that the business is worth more than it truly is and make promises that you can't keep. In that case, you're going to end up having some challenging discussions that may negatively affect your relationships.

For many small businesses, a fair valuation is likely to be in the range of 1 to 3 million dollars. Still, your assessment will be driven by several factors, such as revenue, market size, product development stage, and the team's experience level. Evaluate these considerations thoroughly and be as forthright as possible when communicating business value to friends and family interested in investing.

However casual this form of funding may seem in terms of accessing capital for your business, it is still subject to securities legislation. Partner with an experienced professional in this area to ensure you are meeting all of your legal obligations, regardless of the type of funding you choose to utilize.