CHAPTER FIVE – When it comes to raising funds for business, there is always a recommended shot you are advised to take first, especially when you are a first-timer to the fund raising process. Many guides like this one will advise you to get ready to answer myriads of questions when trying to obtain funds for your business from outside sources; and yes, that’s great advice!
It is a known fact that interested investors would request a copy of your business plan. They would ask several questions, all implying one thing: “What’s in this for me?” They want to know what would be their gain after supporting your business with that fat check.
They want to know how soon they will start raking in their profits—and for how long. They want to know if you really have all it takes to make your business weather those harsh challenges the market will throw at you. And they want to know if you have really done your homework.
Though less interested in whatever the future holds for your business idea, commercial lenders and loan-issuing institutions would also go through your plan. But your credit report or bank statement means more to them than the plan itself. They want to know if you are financially capable of taking the loan, and they want to know what collateral you have to secure the loan.
However, most other guides don’t warn you about one very important question that third parties ask—though, indirectly most of the time. This question is so important that the direct or indirect answer you give to it would make or mar your chances of getting the funds you need from these third parties. And the question is:
“What are you putting on the table from your own end?”
By asking this question, third parties want to know if you are also risking some of your own money on the business idea, just as they would be risking theirs. A direct or implied “No” answer would send signals that your business idea is a bad gamble that you yourself cannot risk your money playing, or that you are being too careful with your own money while expecting them to play a dice game with theirs.
Though there are several other possible reasons for such an answer, third parties would only see things in a bad light. And when they do, you know the end result…
Now this is where “taking the first shot” (as used in the chapter heading) comes into play. It simply means pulling together some funds from your end before anyone else does.
Getting funds from your end before approaching third parties adds much credibility into your business idea, just as it casts skepticism out the minds of investors and creditors. In essence, it can help you get the funds you need.
But most entrepreneurs are unaware of the importance of this step—for two reasons: Firstly, questions regarding whether or not you will be risking your own money, too usually don’t come directly. Secondly, most third parties don’t reveal the fact that you are not putting in anything from your end as their reason for rejecting your idea. With the above in mind, you should now understand why it’s very important to “take the first shot.”
5 Crazy Ways to Personally Raise Funds for Your Business
You don’t have any money saved up because you just don’t have enough to spend, let alone to save. And you can’t take a loan, and can’t rack up credit debt. So how can you “take the first shot,” which really requires some money from your end? How can you get the funds needed to convince third parties that you are ready to risk your own money on your idea?
No, don’t let your enthusiasm die or wane at this point. Don’t start thinking that you have come across another huge obstacle. And don’t go crazy. Believe it or not, there are a number of ways to get funds without approaching investors or creditors. Here are five options you should consider:
1. Sell some of your assets
One of the easiest ways to raise money quickly is to gather those assets of yours that you don’t really need or that you can still do without.
Look around your home. Are there any electronic devices that your PC can substitute for, such as your TV and DVD player? Are there other gadgets that you don’t need very often and that you can still live fine without? Are there other goods in your home that you can sell to make good money?
If you have answered some of these questions in the affirmative, then you are on your way to raising a good fraction of the funds you need. (Don’t worry, you can replace those things later, when your business starts to pay off).
It is important that you make a list of the assets that you have decided to sell, and evaluate each. Then put them up for sale on online auction sites (such as EBay), or advertise on free classified ad sites such as Craigslist.
Better yet, you can advertise in the appropriate sections of online forums where buyers will most likely see your advert. You can also sell to your friends or colleagues at work. It may surprise you that you can raise a huge fraction of the funds you need using this method.
In case you didn’t know, many people have built thriving businesses with funds raised from family and friends. In a 2010 survey by the Global Entrepreneurship Monitor, a research consortium that includes Babson College, 32% of the respondents approached a friend or neighbor for funding, 26% approached a family member, 11% approached some other relative, and 8% approached a colleague at work.
If you are an introvert or you simply don’t like to disclose your plans to others, that won’t help you at this time. Only when you open up to others and tell them what you are planning to achieve will they decide to help you.
You must also bear in mind that presenting your business idea to a relative or friend is no different from presenting it to an investor or creditor, except for the level of formality involved. Just as you will do to an investor, you will need to give a good account of your business idea and plans to your friend or relative.
While it’s true that they are only helping you and are not looking forward to getting anything in return, they need to see how you intend to use the money. And they need to be sure that you are deserving of the money in the first place. No one likes to see his or her money lavished on things other than what it was originally meant for.
Also, you must not forget to make it clear that what you need is some assistance or gift, in clearer language. Let your friends or relatives know that you are asking them to give you what they can afford of the total funds you need; not to invest in your business idea. (If you would be presenting the investment option to them, that is equity, and we will discuss that in more detail later on).
Raising money from family and friends is one of the coolest ways to get the funds you need to take a plunge into your business. This is because they will readily trust you and assist you in your bid to actualize your idea—even without looking into too much detail of your plans.
But you must be very careful when adopting this option. Bear in mind that you will be putting yourself under pressure to make your business idea work (this is good, anyway). Carelessness on your part may ruin your relationship with these friends and relatives—for life!
Another way to raise funds is to apply for a business grant. Small business grants are available from state and federal governments, private organizations, and other resources.
From finding a relevant grant opportunity to conducting research into the opportunity and specific requirements, to taking your time to complete and submit your application, the grant application process can be really time sapping. But it will be well worth it if you eventually win the award. You can start by scouring the web for information about grant programs by your state of federal government.
In some countries and states, government grants are available to entrepreneurs planning to start new businesses. In other places however, government-issued grants are reserved only for existing business that meet certain conditions. If you are in the US, you can search for Federal Grants via Grants.gov, a government-owned public database of over 1,000 grant programs.
However, you must bear in mind that one of the keys to getting a business grant is stating a strong benefit that the government stands to enjoy—directly or indirectly—in the long term. Examples are generation of employment opportunities and development of technology that the government can use in its programs and services.
If you cannot find any government grants that you are eligible for, then private and non-governmental organizations are ways to go. You will need to search the web to find such grants that are available to you. Again, stating how the society will benefit from your business will boost your chances of winning a privately issued grant.
4. Enter business plan contests
You can start by searching the web for any currently open business plan contests that you can participate in. You might just be lucky to win the money you need to start your business.
Some business plan contests award up to hundreds of thousands of dollars as prize money. And some award much less. It doesn’t hurt to put in for as many as possible contests. You never know where your entry would land on “fertile ground.”
Even if you don’t win the prize money at stake, there are other benefits you would derive from participating in business plan competitions:
- You would get multiple points of feedback (from the judges), and you would have your idea critiqued and evaluated for flaws you may never have thought of addressing.
- Business plan competitions can help you build connections. The judges and other influential individuals in charge of the contest can provide useful introductions and help your business out in the longer term, especially when they feel a connection to the problem your business promises to solve. At competitions, you can also meet powerful mentors and stumble upon impactful potential opportunities.
5. Get a job (or more jobs)
This may sound counter-intuitive, but it may just be way to go if you are unable to get funds from any other source. What this means is that you may have to put your business idea aside for some months to a few years while you try to gather the money you need to start your business.
If you already have a job, start figuring how to manage your income in a way that enables you to set aside a good fraction (weekly or monthly) for your new business.
For example, if your current job fetches you a total of $1,500 per month, you can start saving $500 monthly—or more, or less, depending on your monthly budget. This way, you would be able to raise $6,000 in one year. If you need a total of $10,000 and approach an investor with your $6,000, you will most like get a good response especially if your idea is really stunning.
Of course, a convinced investor would readily add $4,000 to your $6,000 since you have “taken the first shot” by putting $6,000 on the table. Would such an investor do the same if nothing has come from your end? Well, not likely.
In case your current job earns you just enough money to settle your monthly bills, you may need to get another job, probably a part-time job. Your aim will be to save your earnings from the second job until you have raised enough to start your business or confidently approach an investor. After you have raised some money, what comes next?
After adopting the tips given above, you are more than likely to raise some significant amount of cash. In fact, you may end up raising just the amount you need to kick-start your business or even more. (In that case, you need not be told what to do next—start your business right away).
On the flip side, if the cash you raised is still not enough to start your business, then you will need to do more. You can approach either an investor or a commercial lender, telling them that you have raised some money from your end and would need additional funds from them.
For example, if you need $15,000 to start your business, and you are able to raise $7,000 using the tips above, most investors would be ready to invest the remaining $8,000 if your business idea is really promising.
However, even more investors would be willing to part with their money in support of your idea if you go a bit more practical. How? By starting small! This is called “Bootstrapping.”
What is bootstrapping?
Bootstrapping refers to starting a business with little initial investment and with the aim of growing it organically.
So, if you take your $7,000 and launch just a single product or service, instead of the multiple offers highlighted in your business plan, that’s bootstrapping. In simpler terms, bootstrapping involves starting your business “partially” with the little funds you have. You get it now?
4 Advantages of bootstrapping
- Bootstrapping is a practical implementation of your business idea and plan—in mini form, though. It helps you understand market realities and quickly see flaws that you may not have noticed earlier. And it helps you discover how best to run your business to make it withstands the test of the market.
- It provides the practical evidence that will convince investors that your business plan is practicable and marketable. So, by bootstrapping, chances are higher that you will attract investors to your business.
- It can help you raise the remaining funds you need to complete your idea plan, which means you won’t need to approach a third party for funds after all. What could be sweeter?
- Because bootstrapping usually requires that you do extra work on the side while keeping your regular job, it makes you more effective and efficient with the limited time you have.
5 Tips for Bootstrapping
- Launch only one or few of your planned offers (products or services)
- Outsource professional tasks instead of hiring employees
- Start with a home office
- Adopt cheap but effective marketing strategies such as word-of-mouth, referrals, social media, forum marketing, organic SEO, free classifieds, and so on.
- When buying items you’ll need to run your business (for example, computers, printers, etc), consider buying used ones in good condition rather than new ones.
Most investors want to do business with proactive entrepreneurs—those who can confidently prove that their business ideas would be profitable in the long term. Pulling some funds from your end will send signals to investors that you believe strongly in your idea and are ready to put your money into it.
But you will send stronger signals if you go the extra mile by starting a “mini version” of your business—bootstrapping, as explained earlier.
- Continue to Chapter Six: Raising Capital from Family and Friends
- Go Back to Chapter Four: Choosing your Path to Fund Raising (Debt Vs. Equity)
- Go Back to Introduction and Table of Content