Tips for getting investment capital for startups

Probably one of the greatest challenges for entrepreneurs is cashflow. It’s a surety that many entrepreneurs have spent sleepless nights thinking about the age-old question, ‘How do I find the money to start my business?’. There isn’t any magic to it, and there’s certainly nobody waiting in the wings, ready to throw money at you just because you’ve a new and exciting business idea.

On the flip side of the coin, a new business offers many creative options that simply aren’t available if you were buying a car, home or large consumer item. As an entrepreneur, you’ll need to think long and hard about your options and be tenacious in your approach. If one or two options don’t work for you, there are always other options. So here are a number of ideas that could help you source the money you so desperately crave.

Open your wallet first

Consider using your savings, home equity or retirement accounts. Sure, it’s risky. But if you were risk averse, you probably wouldn’t be an entrepreneur. And if you don’t have the confidence in your own idea, by backing it with some of your own money, then how could you expect investors to? Investors tend to back entrepreneurs with more than just good work ethic.

Seek a loan or line of credit from the bank

Typically speaking, this option won’t be available to new startups unless you’ve got an already established credit history without blemish or existing assets that you’re willing to use as collateral. If, however, you are fortunate enough to have this option open to you, then it’s an incredibly safe and stable form of finance, one that’ll hopefully transfer to your business. This option of corporate finance is, therefore, more attractive for those who already have a relationship with the banks.

Back your bootstraps: Fund yourself

Paying off your business’ financial commitments as you go using the revenue earned from early adopters is certainly one way to balance your business’ resource-finance scale. As a startup entrepreneur, nothing is more scarce (except perhaps sleep). The more you’re able to learn to bootstrap in the beginning, the easier it will be for you to find ways to raise other sources of capital. And the advantage is that you don’t have to relinquish any dividends or control over the idea.

Keep your fixed costs to a minimum: Share office space or equipment as much as possible. Co-locate with another small company, use the computers and servers you have and try and avoid any major capital purchases.

And consider your variable costs as though they were your own money: Seek trade credit agreements with key suppliers, save on travel for business with smart scheduling and teleconferencing – a Skype call is far cheaper than a flight from Cape Town to Joburg, hire interns from local universities or design schools.

Pick those you partner with carefully

As an entrepreneur, there’s nothing quite like finding a supplier, distributor or customer (first prize) who sees your business solution as an absolute necessity and is willing to help foot the bill alongside you. So why not plan for success from the get-go?

It’s far healthier for your business to create relationships and iron out the kinks as you go along, than to try break into already-established relationships once the company is ready to grow.

If your business solution is as critical for the market as you hope it is, then there will be potential early adopters. If they think that you’ve got what they need, they’ll be willing to open their wallets. Early adopters are good in that they provide invaluable perspective on what’s good with the product/service and what needs improving.

Don’t be afraid to try crowdfunding

Exploding Kittens, a simple card game for people who are into kittens and explosions and laser beams and sometimes goats, became the most backed campaign in the history of Kickstarter. If 219,382 people could back a game with $8,782,571, then why not your idea? Crowdfunding is the newest source of funding, where anyone can participate as exemplified in online sites such as the aforementioned Kickstarter. Here people make online pledges to your startup during a campaign, essentially pre-buying your product for later delivery through donations.

Pitch your financial requirements to friends and family

As a general rule, other potential investors will probably already expect you to have some form of commitment from this source as a sign of your credibility. If your friends and family don’t believe you, how can you expect outsiders to? This is the primary source of non-personal funds for very-early start ups. It also offers you a safer, less risky space to practice your pitch.

Of course every option has its pros and cons, and not every one may be available or even attractive to you. Some are difficult for first-time entrepreneurs to swallow. Others simply don’t work for your circumstance. Thus, it’s always a question of what you qualify for and what you’re willing to give up to turn your dream business opportunity into a viable and stable business. Best of luck to you.