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Helping Entrepreneurs Succeed

When starting or growing a business, the idea of raising money can be overwhelming. Should I raise money? When should I raise money? Where do I start? What do investors expect? How much will it cost me?

I won’t lie, raising money will be one of the hardest things you’ve ever done as an entrepreneur, but it’s also one of the healthiest things you can do for your business. Taking OPM (Other Peoples Money) will force you to clean up your act, articulate your value-proposition and organize your plans. If you decide that you do want to raise money, whether its to get started or to help accelerate growth, there is a continuum you need to understand before seeking capital.

This list ranks sources of capital from smallest amount / earliest-stage / most risky to largest amounts / latest-stage / lowest risk

Bootstrapping – $0. This is when you start a business without external help or capital. Entrepreneurs that bootstrap fund growth and development in creative ways and are cautious with expenses. Ask yourself, “Who will benefit from my business being a success?” It could be suppliers, partners or customers. Get them to provide you extended terms so you can get off the ground. If that’s not an option use personal credit cards and lines of credit to get your business off the ground. The further you can get on your own the more of your company you can keep to yourself!

Friends, Family and Fools – $25-50k. After you’ve bootstrapped and got as far as you can, if you still need money this is a classic way to fund your business. Most people have at least one rich uncle, grandparent, friend or acquaintance who can write a $25k check. It’s okay if your business needs more than $25-50k but you need to start somewhere. Terms at this stage are whatever your FFF are comfortable with but usually if you give them their money back, they’ll be happy just to help you get started.

Non-Profits, Competitions & Grants – $5-100k. This route is a complete pain-in-the-ass, but it’s hard to beat free money! There are a ton of great programs out there and its an option worth exploring. With that said, I wouldn’t count on this as a source of funding because even if you do find a program that fits your business, and you get through their application gauntlet, you still need to be chosen and that process can take months if not years. Best advice – research to see if there are some local resources but don’t spend more than a couple hours doing so.

Angel Investors – $50-500k. Angel investors are wealthy individuals who are willing to make risky investments with their own personal money. Oftentimes they are interested in your business because they have a similar background or some other connection. Most Angels were entrepreneurs themselves so not only can they provide you capital, they usually serve as advisors to your business and can help open doors. This is a tremendous source of capital because its smart money but it’s not as rigid as venture capital.

Venture Capitalists – $100k-$50MM. This is when things get serious. Venture capitalists are not the sharks everyone makes them out to be (at least we’re not!) but they do expect a return. In other words, if you’re not performing your uncle Fred probably won’t fire you, take your business over and run it himself, we will. This is professional money and most venture firms can add tremendous value to your business through their contacts and networks. If you get hooked-up with the right firm they’ll help you grow and improve your business beyond what you thought was capable because most VC’s have significant operational experience. Some VC’s do make investments at the idea stage but their sweet spot is early-stage companies with proven business models that have revenue and are ready to scale.

Private Equity – $10MM-$10BB. Private equity is basically venture capital’s boring, older brother. Unlike VC’s, most PE firms invest in stable, cash-flowing businesses only. They are also professional investors and can add-value to your business, but they are generally financial guys who are more concerned with your balance sheet and cash flow statement than your business development model and technology plan.

Bank Lending – $50k – $5oMM. This is the definition of dumb money. Banks only lend money to stable business with proven, historical cash-flows and assets to lend against. Bank financing is a great source of cheap capital if just want to leverage your cash and you don’t need any strategic help with your business. If your company is mature, you’re a rock star CEO, you aren’t looking to exit anytime soon, and you just want cheap money, go to a bank.

Capital Markets – $100+ MM. This is when you know you’ve made it, when millions of people you’ve never met own a piece of your business. In the best of economic times only 750 to 1,000 companies go public each year. To make matters worse, you’re company needs to be worth at least $100 million at the time of an IPO in order to be truly successful. Considering over 600,000 businesses are started each year, your chances of going public are less than 0.17%. I hope you get to this point, but you shouldn’t bank on it!

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