How do I get funding for my startup/new business?
You have a great new product or service and you execute. You've built a proof of concept, now you need funding for your startup to really get going. But where and how does one get funding for their new business in today's fast-moving and complex world? We put this startup funding checklist together to help you map out your options and plot the funding course that will be best for you.
1. Yourself - yes, yourself. The absolute best place to get funding for your new business venture is yourself. Save as much money as you possibly can before you start your venture. However, we don't control the timing of our great ideas, so if you don't have a bunch of money saved up, that is ok. Make do with what you've got. Spend as little as possible to get an MVP (Minimum Viable Product) to market. Do not hire a single consultant. Avoid lawyers and use online legal resources instead. You need to know everything about your business in today's world, so try not to outsource anything. More specifically, use the sales of your own product to fund your new venture. Get started anyway you are able. You're going to have to be resourceful, scrappy and get dirty. If you want this bad enough, you'll make this happen. If you don't, you won't.
Starting with too much money is a curse that is likely to end in failure. Once you have built some product, start selling! Don't over-think it, don't wait. Just start selling. The absolute best marketing and best validation for anything in business is sales. End of story. Then, turn around and use those sales to fund your business. Sounds impossible? Fear not. One of the greatest entrepreneurs in American history did everything I just typed above and her name is Sara Blakely. She started her company (Spanx...you may have heard of it) and she did it just like this.
By the way, Spanx has made Sara a billionaire partly because she owns 100% of the company to this day and has no debt.
2. Friends & Family - most people might be reluctant to take money from friends and family, and for good reason. Starting a business is risky and losing that money could make for some tough times at Christmas and Thanksgiving. That is ok. Taking Friends & Family money is critical if you want to ever convince an Angel Investor and/or VC's that you are worth funding. Why? They need to know you are absolutely committed and that you won't walk away when the going gets tough. The best way to prove that to them? Take investment money from Mom or Dad. Take an investment from your sister, brother, best friend, etc. If you are worth investing in, you'd rather starve than lose their money. This will let Angels and VCs know you are in it to win it and won't leave them and/or their limited partners holding the bag.
3. Angel Investors - if you are reading this article, you might be saying to yourself: "Sure Justin, it is easy to type the words 'Angel Investors' on your computer and post it to your IceAge Insights blog, but how they heck do I find Angel Investors?" It will be easy for some people and difficult for other people. To find Angel Investors, you have to start by giving selflessly and talk to anyone who will listen to your idea and your vision. Help others in need and do so without expectation. If you can do this, you'll find the Angel Investors you need. I know what you are thinking: "Justin, you are so full of s***!" Giving selflessly will create the type of strong bonds and network that will naturally fold you into the circles where Angel Investors run and eventually, you'll find one if you need one. The timing might not be what you think is right, but more than likely you'll find that the timing proved to be just right in the end (some reflection might be required). You'll be amazed at what happens in your life if you just start helping people without expecting anything in return and speaking to everyone you meet about your business. If you give with an expected quid pro quo, you won't find the people for whom you are looking.
4. Banks - this is tricky. For the most part, banks will be there for you when you need them least. When J.D. and I started Qore Performance®, banks wouldn't lend to us. Heck, they still won't lend us and we generate fantastic free cash flow. We had to fund the development of the tooling for IcePlate® Classic using two company credit cards to the tune of about $95,000. Luckily, J.D. and I had great credit because we hate debt, so we were able to get the credit cards. Then, going back to #1 above, we started selling. We paid off our $95k in credit card debt less than a year after we launched IcePlate® Classic to the market and we did it 100% from cash flow. Thank you American Express!
A few years later, we approached a branch of M&T Bank here in McLean, VA about a loan to help us expand our manufacturing capability. Despite our strong sales (which get stronger everyday), they turned us down after we spent a significant amount of time assembling our financials for them to review. Our experiences with Wells Fargo and Bank of America were just as unproductive. We are not trying to throw shade at M&T, Wells Fargo or Bank of America (even if Wells Fargo deserves some shade to be thrown their way for their ethical lapses since 2008), we are simply doing what we always do: live in truth. In this case, the truth is that we went to all of these banks for loans and all of these banks turned us down.
Soon after M&T Bank turned us down for an expansion loan, we moved to United Bank here in McLean, VA. United Bank was instrumental in helping us secure a PPP (Payroll Protection Program) loan via the CARES Act in the summer of 2020 which helped us take care of our team. We remain incredibly grateful for the help United Bank provided during that critical time and look forward to growing with them. We also continue to have great experiences with Capital One.
The trick for you is to find a bank or banks who work with you like United Bank and Capital One do for us. Unfortunately, most banks like Wells Fargo and Bank of America are all talk in this department and we all know talk is cheap. Banks can (and should) be great, but don't fool yourself into thinking they are on your side. Use your time judiciously here.
5. Venture Capital - VCs are great. They have deep pockets, incredible experience, vast networks, and smart teams. They went to great schools and have lots of experience investing in companies. What's not to love, right? Not all VCs are created equal. Some VCs are career investors. They have never had to roll up their sleeves and get dirty to build a business from the ground up, literally making something out of nothing. Some VCs live in a largely theoretical world and have almost no practical experience building and running a business from the ground up. Avoid these VCs like the plague. They are basically academic businesspeople. They are not entrepreneurs.
However, there are many great VCs out there who come from the ranks of actual entrepreneurs who have built real companies from nothing. Ben Horowitz, Peter Thiel, Sara Blakely and my personal mentors Ron Fowler and Bill Babcock all come to mind. These are the types of entrepreneur VCs you want and they can be great. Like everything in life, nothing is free: you pay for that greatness in equity, time and control. VCs have money to fund you, but they will ask for significant equity. Getting the meetings can be tough and the hunt to get the meetings can be incredibly time consuming. Last, but certainly not least, VCs will likely want board seats and that means you could be giving up some control. NEVER give up control of your business. Only you can decide if the VC juice is worth the squeeze for you and your business.
6. Grants - there are an amazing number of grants out there to help you fund your business. We have won grants from FedEx and Loudoun County for Qore Performance®. The good news on grants is that they are literally free money and come with no serious strings attached like board seats, equity or debt. The downside is that they can be small and you have enter contests to win them, which takes time. Only you can decide if the time investment is worth it for your business, but in our experience, grants and business contests are an excellent source of funding and networking.
We hope this startup funding checklist has helped you frame your thoughts for how to fund your dreams. Now, stop reading, go start selling and let us know how it goes in the comments below!
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