The capital lent out by investors to help a new business get off the ground is often referred to as "seed money." If you are a hopeful business owner, you can begin looking for potential investors by talking to your friends and family, networking with other interested parties, and attending startup events.To earn the confidence of your investors, you will need to show them that you have an actionable plan in place for turning your idea into a profitable operation.
Step 1: Speak to your friends and family.
The people closest to you are the most enthusiastic about seeing you achieve your dream.When it comes time to raise startup capital, they should be the first ones you turn to.It's a good idea to sit down with them and explain to them what your vision is for your business.Your friends and family might not be able to match the donations of professional investors, but every dollar you accumulate will bring you one step closer to meeting your goal.
Step 2: Take into account the pros and cons of borrowing from your friends and family.
There are risks to appealing to the generosity of people you know.On the other hand, you are less likely to be turned down.It's possible that you could lose their money if you don't succeed.Make sure you look at the situation from all angles before asking for money.If you want to formalize your arrangement, consider drafting up some paperwork.Having a legally-binding document in place confirms a loved one's financial commitment, and your promise to make good on it, could give you both peace of mind.
Step 3: Crowdfunding is a great way to take advantage of it.
As the internet becomes more integrated into business, more and more entrepreneurs are turning to websites like Wefunder to raise seed money.Crowdfunding allows investors to give as much or as little as they want.It is more likely that donors will be attracted by this.A detailed description of your product or business plan is required.The pitch is designed to sell contributors on the potential of your idea.
Step 4: Give rewards to your contributors.
The key to a successful crowd funding campaign is to offer your donors a return on their investment.If someone makes an offering of $100, for instance, they might get early access to a beta version of the product, whereas someone who puts up $1,000 might be given official sponsor status or an exclusive invite to the business launch.When your donors can expect to collect their rewards should be outlined.
Step 5: You need to apply for a grant.
For a chance at increasing your early startup capital in the U.S., apply for a grant through the federal government's Small Business Innovation Research (SBIR) program.A detailed proposal outlining the particulars of your product or business model is what you'll be asked to prepare.Up to $100,000 in Phase I capital and up to $750,000 with a Phase II commitment can be awarded to you if your proposal is selected.You can check out a list of other federal grants by visiting Grants.gov.Even if you don't get a contract, explaining and defending your plan can help you deliver a more focused pitch to potential investors.
Step 6: To get in touch with outside investors, network.
Share your idea with your business associates.If they think your idea is promising, they might consider investing in it.One interested party can get the ball rolling.Ask your friends and family to spread the word.You have a better chance of getting a commitment if you reach more ears.
Step 7: You can attend a business conference.
Entrepreneurs can meet with potential investors and discuss their ideas at these events.You can find startup conferences in your area by running a search.If you are going to present your product, you need a functioning prototype.At a startup conference, you can interact directly with the people who will be putting up money, which is the biggest benefit.
Step 8: Take out a loan
Talk to a loan specialist at your bank about the terms of a small business loan.To make a commitment to pay back the money on the bank's terms, you have to have a general idea of how much you'll need to start operations.When applying for a loan, be professional, enthusiastic, and ready to sell the lender on the potential of your startup idea.Look for institutions that are supported by the Small Business Administration.When it comes to interest rates and repayment structures, these lenders tend to be more tolerant.
Step 9: Work with a venture capital firm
These companies earn their profits by investing in new businesses.If you pitch your idea to one of these companies, you could net a good chunk of your startup funds.When it comes to your business model, customer demographic, and estimated profitability, the investors in a venture capital firm will want to see that you have done your homework.If your startup doesn't make money, it's not worth it.Since venture capital firms are willing to take risks, you are more likely to get a commitment.They usually set a higher interest rate to make the risk worth it.
Step 10: Get the attention of an angel investor
Wealthy individuals who offer startup money in exchange for a share of the company are known as angel investors.Since angel investors don't usually advertise, you might be able to improve your odds of finding one by reaching out to associates with retired connections who like to keep a hand in the business world.Angel investors may want to have a say in how your business is run.
Step 11: A prototype of your product is created.
Before an investor can decide if their money is being put to good use, they need to see what the use is.If the idea is a product, such as a household appliance or piece of computer hardware, work up a functional model.It's important to show your donors something to make them feel more confident.You will probably be able to cover the cost of production with the donations you received from your personal acquaintances, since it shouldn't cost too much to manufacture one or two basic units.
Step 12: Test the consumer's reaction to your product.
To act as a test market, round up a group of volunteers.Give them a sample of what you have to offer, then invite them to give feedback on what they liked and didn't like.You can get a sense of what improvements you need to make to your product with their responses.It is best to recruit people that you do not know in order to ensure that the opinions you are getting are not biased.Pay your test subjects a small sum in exchange for their time.You may be able to hook more volunteers this way.
Step 13: You can make do with limited resources, if you show investors that.
If you want to get funding for your product or business model, make sure you refine it as much as possible.The more developed it is, the better it will be for your investors.Emphasize how much of your plan you've been able to accomplish without outside help in your pitch.Your lack of investors at the beginning can go from being a weakness to a selling point.Making the most of the resources you have at your disposal forces you to take a more organized approach, and it also leaves less to know about how your product will shape up.
Step 14: Prepare an accurate projection of your expenses.
How much do you need to make your product ready for the market?You will be able to bid for the minimum amount you need and avoid creating unrealistic expectations.Asking for too much money in the first round of funding could be a bad idea.Being able to cite a specific number will help weed out investors who aren't willing to give the necessary fundingAt this stage, you want to focus on the cost of production or operation, so you don't have to think about hiring hourly employees or leasing a property.
Step 15: Have a plan for your money.
You need more than $700,000 to bring your product to market.During your pitch, investors will expect to hear how you intend to use their contributions, as well as how they will eventually pay off.If you want to see how much each phase is expected to cost, you need to break down your projected expenses into a structured analysis.It would cost a minimum of $300,000 to hire a team of 3 software engineers to design a new computer program.Demonstrating a thorough understanding of what your startup funds will be used for shows that you are responsible and poses less of a risk to investors.
Step 16: If you fail to meet your goal, create a backup plan.
Even with an innovative idea, a solid pitch, and a well-executed prototype, you may end up falling short.You can create multiple plans based on different levels of funding.You can still get partial funding if one model doesn't convince the investor.Downsizing your original plan could mean starting with a smaller operations team or removing costly features from an early version of your product.It doesn't mean that your business is dead in the water if you go with less seed money.
Step 17: Your investors should be aware of this.
It's a good idea to give regular updates on the status of your venture.It is important to make sure that you and your investors are on the same page during the first few months of your startup.They should know how things are going since it is their money that is making the startup possible.This could involve creating a monthly mailing list documenting your progress as you approach your launch date, or sending out a notice whenever you make a new hire to your development team.New investors who want a piece of the action could be attracted by reports that your venture is going well.
Step 18: You should be prepared for more funding.
After you've gotten your startup off the ground, you don't need to cut ties with your investors.You can begin appealing for support when your business is gaining steam.You will be able to acquire more resources with each subsequent phase of funding.Your plan will move into "Series A" funding after the early seed round.You will use the funds to refine your product or operations, develop key procedures, and market yourself to begin building a customer base.