People do not enjoy talking about money with others, so it shouldn’t come as a surprise that there’s a handful of people who don’t know how to secure financing for their big project. The idea you’ve come up with is a good one, and you’ve done your research and checked to make sure it’s original and relevant. For more information on that, check out our recent blog on Prototyping your product and getting a patent. Now, it’s time to reach out your hand and ask for money. Unfortunately, even some of the most enthusiastic entrepreneurs can feel discouraged when trying to get funding for an idea they’ve put a lot of thought and energy into. Luckily, there are several options out there, and you have the option to tap into every one of them.
Bootstrapping
Investors are more likely to invest in your product if you have invested in it yourself. Bootstrapping is common and involves tapping into any means of financing your project by your own means, including using credit cards, using up your savings, or any home equity lines. This is also a good idea if you simply need to scale your project up in a short amount of time. Technically, you can also liquidate your 401(k) if you need money right away and are unemployed. Due to new tax codes, you can tap into them without receiving a penalty -if you do right. The steps are simple, but require a fair amount of legal expertise, so seeking legal assistance is recommended. Additionally, it would be wise to remember that you’ll be eating up your retirement funds, so make certain you still have a nest egg in case this idea doesn’t pan out.
Family & Friends
In any beginning sales training, the advice is usually to start by asking friends and family first, and this is for a good reason. They are familiar, tend to care about your success, and in some cases might even want to be part of what you’re doing. If you’re still working on your idea pitch, selling your idea to them first will help you get used to delivering your idea and they may even help inform you on what areas need to be revised by asking questions and giving feedback. As far as funding goes, it might be possible to get some of Aunt Julie’s savings, or maybe ask to tap into your inheritance early. Perhaps you have a family member who wants to invest in something but hadn’t found the right opportunity until you shared your idea. You never know until you ask.
Crowdfunding
In our modern age where people can learn about new products and ideas with a few clicks of their mouse, and can donate to the projects they care about just as easily, crowdfunding has become a very popular way to put the voting power for products directly into the hands of the consumer. Funding platforms such as Kickstarter, GoFundMe, and IndieGoGo allow you to raise funds with very little financial risk. Kickstarter is all-or-nothing funding while GoFundMe and IndieGoGo allow you to keep the donations from your backers even if you don’t reach your target goal in time. Each has small fees taken out of the donations, but this is a great way to get not only an early feel for how your product will do on the market, but to test marketing strategies, and if it goes well, show investors what kind of interest already exists. In some cases, you can choose incentive programs for your consumers, offer to share progress with them so they feel involved, hear their feedback, and allow them a sense of ownership in the process that leads to brand loyalty.
Microloans
Another option available to you is to apply for a microloan, which is a type of small business loan usually ranging from about $500 to $35,000. These are particularly useful if you have bad credit or no credit history, no collateral, or aren’t having any luck with securing loans from a bank. Instead of going to a bank, you’ll go to a microlender. There’s less documentation, the filing process is far simpler, the criteria for a microloan is more flexible. However, they often charge a higher interest loan than banks. Groups such as the Association for Enterprise Opportunity (AEO), a company that has over 1,000 partners and members, are great resources for connecting with the right person to provide capital to your project. Additionally, check out Kiva and Accion, two websites that specifically focus on low-income entrepreneurs and anyone working for social good.
Small Business Loans
These loans are typically given to entrepreneurs who’ve had a few years of experience in business, have existing capital, and have a strong business plan. While they’re a bit more difficult to get than microloans (which are better suited to first-time startups), they aren’t impossible to get, and since they will offer a higher amount of money at a lower interest rate than a microloan, it’s recommended to try and get one. The Small Business Association can help you find the right loan for you and navigate the process. Additionally, you might want to see if your city is offering any assistance or funds to bring in business into the city. Check with the local chamber of commerce to find out.
Find an Investor
Finding an investor usually requires meeting the right people and being introduced. Sometimes, people just get lucky, and other times, entrepreneurs make their own luck by bringing influential and well-connected people onto their team. Some product development companies will even help you with this, since they’ve been in the business long enough to know others in the industry and build rapport. Angel Investors are highly sought after as they may invest anywhere from $10,000 to a few million dollars. Angel Capital Association hosts over 330 angel investor groups worldwide, or you can check out AngelList to get connected with interested investors.
Profit Sharing
Another option is to pledge future earnings to interested investors. Usually, entrepreneurs will offer a percent of the profits that will be made on the product once it hits the market. This will obviously cut into your profit margin, and that’s something to consider when you’ll likely need to budget your money to pay back other loans or investors.
Venture Capitalists
This goes back to knowing the right people and getting a venture capitalist to finance your project is ideal, but the best way to get this kind of backer is via an introduction. Having a personal connection to someone who knows the VC of interest is akin to bring vetted in society. While it isn’t impossible to get a VC without knowing someone already, it isn’t impossible. Check out the National Venture Capital Association’s website to look up VC’s, network with experts, and try reaching out.
Whether you use some of these options or a combination of all of them, there’s no better time to begin the process of finding your project. If you have a great idea but no way to get it off the ground, remember that there are always resources as long as you put in the work and look for them.
