Entrepreneurship is an essential driver of our economy and impacts nearly every area of our lives. Think about the various products and services you use every day. Ever stop and wonder about their origin? Some visionary from the past invented that toothbrush you used this morning and that electric coffee maker that dripped out your cup of joe. Our country was founded by entrepreneurs — Ben Franklin invented everything from bifocals to the flexible urinary catheter. He’s even credited with establishing America’s first free library.
Maybe you have a business idea you’ve been ruminating on, or maybe the idea of entrepreneurship just feels like a great path for you. There are so many opportunities out there and different avenues for getting your business off the ground.
Tracy York, co-founder and vice president of customer success for HG Insights, recently joined the AKPsi Business Edge Podcast to share his experiences as someone who has successfully founded multiple companies — one which went on to acquisition in 2010. “For those thinking about starting a company, there’s opportunity out there. All kinds of firms looking to build teams, to fund companies… it’s a pretty amazing environment in the ecosystem,” he said.
Securing seed money
Regardless of the size or scale of the business you hope to build, you’ll need some level of financial investment to get started. The first step is to calculate your costs and funding needs. The plan and vision you have for your business will shape what that need looks like. No financial option is one-size-fits-all, so once you figure out how much initial money you’ll need, you can start evaluating the various options for acquiring that funding.
If you already have a few bucks in the bank (or know someone who does), self-funding or “bootstrapping” might be a good option for getting your business off the ground. Self-funding can come from dipping into your savings, investment from family and friends, or even tapping into current investments like your 401k.
The benefit of self-funding is that you get to retain total control of your business. On the flip side, you also take on all the risk. It’s important not to bite off more than you can chew financially, so talk to a financial advisor about your best options.
If you’re on social media, you’ve no doubt seen crowdfunding campaigns for just about every product and idea imaginable. Platforms like Kickstarter and CircleUp have made crowdfunding a popular avenue for raising small amounts of money from a large number of people (the “crowd”). It’s low risk for entrepreneurs to raise money this way since the people who contribute aren’t considered investors and don’t get a financial stake in the business.
Crowdfunders usually contribute because they’re passionate about your idea and want you to see it through. They’re essentially giving your project money upfront in order to be a future customer or be involved in some way. Even though you won’t technically owe your crowdfunders anything financially (whether the business takes off or not), you can still offer extra incentives or perks to those who choose to invest.
Small business grants & loans
Another way to retain control of your business aside from bootstrapping is with a grant or small business loan. With most lenders, you’ll need a business plan, expense sheet, and financial projections for the next five years in order to secure a loan (and just having those items doesn’t mean you’re guaranteed to get it).
If you have any trouble getting a loan (e.g., the bank thinks your business idea is too risky) you can look into SBA-guaranteed loans. With an SBA-guaranteed loan, if for some reason the borrower (you) can’t repay the loan, the lender can still recover 50 to 85 percent of the outstanding loan balance from the SBA (Small Business Administration). This reduces the lender’s risk, making them more likely to approve the loan. But as the borrower, you’re still on the hook to pay that money back.
Depending on what your business idea is, you might also qualify for a federal grant. Government agencies often give out grants to small business owners and entrepreneurs. Grants.gov has a database of grants administered by various federal agencies, from the Department of Agriculture to the Department of Justice.
Whether you’re just starting out with an idea and a dream, or you’ve already gotten your seed money and are a few years into your business, venture capital firms can provide you with funding to grow your business.
Venture capital is funding that’s provided by investment banks or well-off investors (aka rich people) to startups and small businesses that these investors believe have the potential to grow and give them a big return on their money. Venture capital investments are typically offered in exchange for ownership and an active role in the company.
The biggest question many entrepreneurs have is where to find venture capital funds and how to get these investors to share the wealth. One way the U.S. Chamber of Commerce recommends connecting with VCs is through a referral from a financial professional, like a lawyer or CPA. Networking is also important — try to make genuine connections with venture capitalists in your extended network and always be ready to pitch if you find yourself in the room with one.
What VCs care about most is getting a good return on their investment, so do some financial projections and know your balance sheets. The better you can sell the potential of your business, the more likely you are to secure funding.
On the podcast, Tracy York described what it felt like when pitching his business: “It’s very nervewracking to be in that first pitch meeting and trying to do what’s going to bring the company the funding to keep going, but you learn from those experiences… you’re not going to nail every pitch. It can take months, and rejections, and not getting meetings. But if the idea is there, you’re going to find the right market and understand what didn’t go right before, what may need to change, and what’s that right story to put out there.”
Find a mentor
Launching a startup is a ton of work and completely new territory for most people. Finding a mentor who has done it before is a great way to get advice that can help you navigate these uncharted waters. You can get introduced to potential mentors by way of family and friends, or through your professional networks like AKPsi. You can also check out The SBA’s Office of Small Business Development Center in your state. They can help you get hooked up with potential mentors, other resources, and even help you apply for federal grants.
*Disclaimer: This article is for general informational purposes only and not intended to provide specific financial advice or business strategy recommendations to any individual. It is only intended to provide education about general information and available resources. Any ideas or strategies discussed should not be undertaken by any individual without consultation with a qualified financial professional.