As an entrepreneur, I face this question with my businesses all the time. Access to capital (money) is critical to get a business off the ground. Just incorporating a business and filing end-of-year taxes can cost an entrepreneur in excess of $1500 the first year. That's even before the business takes any action such as buying equipment or hiring workers. Fortunately, there are many entrepreneurs out there dealing with these same problems.
Ask yourself several questions about your business:
- How much money do I need to get started?
- What kind of people have the money that I need?
- Why would they want to give me the money I need?
- What is the easiest and fastest way for me to get the money I need without sacrificing too much of my business goals?
Here are some potential sources entrepreneurs often consider
Sell equity in the business
One of the most common ways of raising capital is to sell a stake in the company (called "equity") to someone who is interested in investing. When you incorporate the company, you divide ownership up into shares and sell some of those shares to the investor (they get "a piece of the equity"). The investor pays the company the money it needs to start up and then they get a share of the profits from the company in the future. You will need to speak to a lawyer if you decide to sell equity in your business to make sure that your interests are protected, and that your investors are legally allowed to invest in your business. Some examples of the types of people who often invest in the equity of new businesses:
- Friends and family - Entrepreneurs often try to avoid this since starting a business is risky and they like to avoid exposing their friends and family to this risk. What happens to your friends and family if your business goals don't pan out? That said, it is quite common, since friends and family are often interested in supporting the business endeavors of entrepreneurs. There are also legal challenges from having someone invest in a business if they are not an "accredited" investor.
- "Angel" investors - Wealthy individuals (often entrepreneurs themselves or past-entrepreneurs) are often looking for opportunities to invest in a business.
- Venture Capitalists - VCs are people who work at funds which invest in small businesses. They usually focus on a certain industry and can be incredibly beneficial investors. They usually invest only large amounts in a business (for example, anything in the $500,000 to $10M range).
In almost every city in America, there are a variety of competitions where entrepreneurs compete to win prizes which can be thousands of dollars (there are popular competitions in Boston that award $100,000s to entrepreneurs to start their businesses). You can google for "pitch competition" or "business plan competition" to find some in your area. Even if you don't win the money, these competitions can be great ways to get valuable feedback and find partners.
If your business provides a social benefit, you might be able to apply for a grant from a foundation, a government entity, or another organization to get money to support your business. There are even grants for young entrepreneurs that you can apply for. To find out about grants, you can search on google or you can contact the Foundation center in NYC and ask them for some guidance on how to go about your search. You do not have to be a non-profit to get grants!
Recently there have been a lot of people who have raised money on crowdfunding platforms like kickstarter.com or other similar services
Financing through customers
It is becoming increasingly popular for entrepreneurs to contact their customers and ask them for the money required to build products that the customer wants. In fact, this is increasingly becoming considered a good practice because it forces the entrepreneur to find out whether the customer wants the product BEFORE investing the time to build it.
Borrow money (debt)
It is very wise of you to avoid debt too early in your career, but you should know that it IS possible to borrow money to fund your business. Banks usually do not lend for this purpose, but you can borrow funds form many people who are not banks.
Get a job
Yes, it's true. Sometimes the only option available to you is to get a job and save your money. Make sure you know how much you need, and then calculate how much you can save so you know when you can achieve your dream. Finding ways to reduce the amount of money you need, or increase the amount of money you earn can shorten the time it takes to open your business.
I hope this helps.
Jared, Chief Village Elder</body></html>
Depending on what type of business you are intending to start, a route many are taking these days is to use www.kickstarter.com
If you craft a good business plan and prepare some marketing materials you can get early investment through kickstarter to get your business off the ground. Most successful campaigns have a pre-order component, where you promise to provide goods and services in the future for an investment now.
You can start a side business for a very small amount and generate revenue for your eventual full-time business. You'll learn a lot of good lessons along the way as well. This is what I am personally doing, currently. I recommend a book called $100 startup by Chris Guillebeau. It's full of real-life examples. Who doesn't like the idea of being able to start out with such a small investment and grow into an independent business owner, rather than going into debt! Good luck!