Funding is not easy. Be smart about it.
Getting funding is great but it is not easy. Before you even think about raising capital make sure you are certain you actually do need to raise some money. Raising capital is not easy, and it is expensive. Can you generate revenues and organically grow your company? If you can’t, then chances are you will need to raise capital from some source.
Capital raising is expensive. It will take a lot of time from the rest of tasks in the company. It also requires a bunch of documents to be prepared such as a business plan, presentations, executive summaries, and elevator pitch. You will also need to setup the legal structure of the company to sell stock and offering documents such as a Private Placement Memorandum (PPM) needs to be created. Raising capital can come from many different angles, or combination of. Before you start the process make sure you know what you need to raise. It should be enough to meet major milestones plus some extra cushion in case things are to take longer than expected.
Once you are ready to start raising capital it’s good to evaluate who you know, and see if there are ways you can raise the capital from within yourself or family and friends. Some creative ways to find money outside of savings and trust funds are credit cards, loans against assets, and second mortgages. The more you can invest at the beginning the more ownership and control you will retain moving forward. This is a great way of funding a venture, however, it also has its disadvantages.
Investors need to bring more than just money. Money is what you think you need, but in reality, you need experience and expertise. You need more brains believing in what you are working towards. You need more contacts, and a greater network of people. You need different perspectives, and you also need money. If you can get other people to co-invest with you that is the best option. This will reduce your investor’s risk, and increase your probabilities of getting to market quicker.
When looking for outside investors you can look for various types of angels such as family and friends. Super-angels such as very wealthy investors that will invest large chunks of money (typically over $200K) at an angel valuation. If you need more money and you do not have access to more angel based capital, you can then explore other methods of funding such as venture capital or institutional funding. These types of funding are great in respect to the resources that will come along with their investment, however, it will be very expensive. They will devalue your company and typically take control of the vision and management team.
So ask yourself and be honest to what you actually need. Take as much capital as you can get, however, know and understand the consequences. Study the different options and contingencies of each. Capital is essential for a company to stay in business, but it is not easy to get and can be very expensive.
Regardless of which option you go with, try to always have fun in what you’re doing and make sure you can preserve the culture you’ve created. Investors will be investing in the technology, management team and company’s culture.