You have an idea. You have a cofounder. You even sketched a business plan on the back of an envelope. So, what do you need now? The first thing you need is startup funding.
The first person you think of is Uncle Ronaldo. He has lots of money.
Of course, you’ll have to navigate those tricky family relationships to reel him in. You’ll have to answer embarrassing questions like, “What happens to my money if you go under?”. And you’ll probably have to put up with his unsolicited advice. With a smile, of course.
But he’s got money and he’s always liked you.
Empty the Vault
Banks have lots of money, too, and they make loans to new companies. It helps to go to your own bank. They know you and they can quickly check your creditworthiness. It also helps if you have a few thousand dollars on deposit and in investments.
You’ll have to fill out multiple forms, maybe sacrifice your firstborn, and wait for them to evaluate the risk associated with your loan. Eventually, they’ll give you the thumbs up. Or not.
But they don’t give advice on how to run your business and they don’t want stock. They charge interest instead.
Uncle Sam Wants You!
You could look into the SBA (Small Business Administration). The government wants entrepreneurs to succeed. That’s where most of the economy’s job growth comes from. The government loves job growth.
There are forms to fill out, of course. A lot of forms. They try hard to act quickly, but it’ll take at least a couple months to process your application. If your plan is plausible, you’ll get the money.
You definitely don’t want to take their advice on how to run your business. What could the government possibly know about good business practices?
Like banks, they’ll charge you interest instead of taking equity.
Time to consider venture capital firms. You cringe because visions of bloodthirsty, cutthroat, bottom-line obsessed vultures come to mind. This is unfair. They don’t want your blood.
But they are successful, hard-nosed business types. They know what it takes to succeed. They’ll ask you a lot of questions, analyze your business plan (best to give them something more than that envelope), and examine your character.
They’ll give you advice, even if they don’t give you the money. You’d do well to take it to heart.
If they want to give you the money, they’ll want stock in return. Be prepared to negotiate how much and what kind. Time to brush up on your hardball skills.
Next stop? Angel investors. They sound, well, angelic. Kind of like Glinda, Good Witch of the North. Don’t be fooled. They’re like venture capitalists, but a solo act.
They are high-worth individuals who are looking for a return on their money considerably higher than what is available in the investment market.
You’ll have to answer the same questions posed by venture capitalists, submit your business plan to the same rigorous analysis, and endure a few alcohol-drenched cocktail hours so they can get to know you.
If you’re lucky, you’ll hit it off and get your money. If you’re really lucky, they’ll become a behind-the-scenes advisor who just might save your bacon once or twice.
But they want a high rate of return so expect to give up equity.
An Offer You Can’t Refuse
If none of those appeals to you, you could always go to a loan shark. We don’t recommend it. They’re expensive, they’re illegal, and they’re bloodthirsty. Literally.
So, there you have it. You have an idea. You need capital. You have five choices. No matter which route you take, your trip will be an adventure. Bon voyage!