“Where am I going to get money?” is a common question that small business owners have and it’s a real concern. If you are not in a position to be your own bank, you’ll need to find another source. When you are ready to start pitching banks or investors you might want to keep a few things in mind.
Here are 7 tips on attracting funding to your small business:
- Dare to be different — Starting out, it’s vital to choose to operate a business where you already know something about the industry, or you have experience having worked in the field. Nobody wants to invest in a business where you’re reinventing the wheel, so use the knowledge to innovate something different in your field before you forge ahead.
- Bootstrap like there’s no tomorrow — With no debt and no investors, you’re free to take your company in whatever direction you see fit. Rule #1 for the small business owner should be to self-fund for as long as is humanly possible — then look to external sources for funding.
- Be more attractive — The #1 most attractive trait? It’s not being a blonde or driving a Maserati – it is being profitable! If you’re not there yet, have a clear, well-thought-out plan in place that shows your company’s path to profitability. This will enable you to at least negotiate some of the terms of third party investments.
- Show your growth — For most businesses, funding in the early stages of a company’s launch is incredibly difficult. As the business owner, your #1 priority should be growing your business, in terms of customers and infrastructure. The best way to do this is to focus all of your energies on your core function and outsource what you can — the cloud offers ample opportunity to save time, effort, and money. Even early stage companies that show solid growth will be attractive to investors.
- The impetus behind increments — The first step is to decide how much money you need. And no, “a lot” doesn’t count! When you’re talking to potential to investors, they’re going to ask you the size of the increments you’ll be offering (i.e. $1 million raised in $100,000 increments). Pick the largest increment size you think you can get investors to match. You can always split and quarter your increments, but some investors will take “one” no matter the size, and the fewer investors you have, the more control you’ll have over your own business.
- VCs can be costly — My best advice is to avoid VC (Venture Capital) funding in your company’s early stages. When there is little you can offer them in terms of value, many VCs will “offer” to take a controlling stake in your business in exchange for the funds you seek. If you take them up on their offer, you will likely end up with a group of “bosses” that tell you what to do with your business to ensure a quick return on their investment. Once you’ve built a team and an infrastructure, and you’re profitable — that is the right time to go after VC funding.
- Consider other options — Many times there are alternatives to VC funding including local angel groups, private investors and — surprise! — friends and family. In fact, the easiest money to raise is from friends and family — friends will follow other friends and, if you’re willing to let your family invest in your business, most will consider the investment sound. Try to evaluate what your venture realistically needs to succeed and first look for funding and strategic support close around you — you may be surprised at the interest and advise you’ll find!
Bill Grodnik is a CEO of Davinci Virtual. www.davincivirtual.com As CEO of Davinci Virtual and Davinci Meeting Rooms, Bill Grodnik is responsible for overseeing the growth and marketing strategy of both companies. Bill also earned a B.S. in Business from Arizona State University.