One of the greatest challenges for any entrepreneur starting their own business, whether the business is ‘for profit’ or ‘not-for-profit’, is that of raising enough capital in the early days to turn their idea and vision into a reality.
In many ways it can be likened to how hard it is to first push a huge boulder, the effort required is so much greater to get it moving than to keep it moving, and in this sense the one thing you need to start pushing that boulder and transforming a good idea into a business concept with traction, is capital behind you, as just like a jet taking off at an airport – without jetfuel, you’re simply not going to get very far.
The same is true if you choose to start a nonprofit, you still have the exact same obstacles as a business, and whilst your cause might be greater than that of turning a profit, it can be harder to find people willing to invest in a nonprofit due to the fact most investors are focused on turning a profit themselves… of course, there are many altruistic people out there, that are happy to help – but connecting with these people can be much easier when you already have traction and a track record of getting results.
In this sense, if you are starting a nonprofit, what you will really need is a captivating positioning story that captures the hearts and minds of influential people to back your cause – as when the funds are low, creativity must be higher.
Indeed, setting up a nonprofit or for profit business on a budget can be very helpful in terms of future development and success as “throwing money at the problem” is not the most efficient way to do business, and therefore, it can be a blessing to be struggling to raise money in the early days as you have to adopt the paradigm of ‘where there’s a will there’s a way’. This builds grit, resourcefulness and problem solving skills – all of which are required to take your concept to the next level.
However, when launching a project, money is a lot like oxygen, in the sense that it is absolutely vital – at least some money. Therefore, in this article, we’re going to look at 5 ways to raise money as a startup.
1. GET A BUSINESS LOAN
The most traditional route with regard to setting up a business, particularly, a small local business, is that of obtaining a loan from a bank or finance company. This is usually the most simple and straightforward way to fund your idea, yet it’s also one of the most risky, and is only available to those with ample credit, or equity within their home.
An option some people take is to actually set up their business on a zero percent credit card, as this way, the funds are instant and there’s no “selling” required in terms of creating a business plan and pitching it to the bank manager.
In any event, if you source your own line of credit, the good news is that you keep all the control of your company – unlike having to split profits with external investors – that said, you also shoulder all the risk… and if your business doesn’t work out, but you’ve secured your finance on your home, this can be a very stressful and precarious situation to the point it can lead to bankruptcy – so be very careful in terms of going down this path and make sure you consider all the risks.
2. FRIENDS AND FAMILY
Perhaps the most ideal place to look for financing your dream are the people that know you best; your friends and family. Of course, if you already have savings, that would be the first place to look, though chances are you wouldn’t be reading this article if that were the case.
The prospect of borrowing money from a wealthy friend or relative can be very appealing, but consider what happens should your venture not be successful – not just financially, but socially… as the amount of strain owing money can put on relationships is enormous and you might want to work out whether this particular relationship can take the strain should things not go to plan… and put something in writing, in terms of what would happen to the money invested should things not go well.
This way, there is at least clarity and a mutual respect gained from the certainty of knowing what would happen if the venture were not to be successful. This might seem like an onerous and perhaps over-responsible thing to do, in the dreamy early days of visionary success, but it just might save your relationship.
3. CROWDFUNDING
A recent trend in raising startup capital is that of crowdfunding. This is where you pitch your idea on an online platform and people (often strangers) offer cash to back your idea… either for a slice of the profit, a discounted reward, or to support a noble cause.
Crowdfunding sites are particularly good if your project has an element of social value about it, not that it has to be a non-profit social enterprise… but a sense of “giving back” as people are keen to back projects with a compelling social story.
The core advice, with Crowdfunding, therefore, is to endeavour to focus on the story behind your brand and your mission, rather than just the financial forecasts and unique selling points – as these aren’t savvy investors from Wall Street. They are average people that like the idea of “giving back” and perhaps getting something back in return for their support… therefore, connect and be human!
4. CONTESTS
There are many contests available for startups with ambitious plans that can provide much needed funding. In this sense, a business incubator such as Y Combinator is somewhat of a contest – in that you are competing with a number of other entrepreneurial businesses to win a place on the incubator. Business incubators tend to offer a small amount of seed capital, along with space, contacts and mentorship – indeed, the most valuable aspect of a business incubator is often found in the mentorship you will receive.
Business incubator’s tend to put on an investment event where you are able to pitch to relevant investors and support you in getting more substantial funding; making them a supportive stepping stone that is very useful in the early days.
5. GRANTS
There are a number of grants available for both nonprofits and for profit ventures. Usually, you have to tie in to a particular theme or tick a few boxes, and therefore shape your grant proposal to the needs of the grant provider; but with a little creativity and hard work, you can certainly find grants.
There are grants for certain causes, within the nonprofit sector, and within the business sector there are grants for particular sectors (e.g. renewable energy and personalised medicine).
The challenge, with the more scientifically focused grants, however, is that they tend to be more academically biased – in that they often go against the grain of many entrepreneurs, but if you come from a research background and are looking to create something particularly innovative, these would definitely be worth looking into.
In summary, the five main options available to you are likely to be found in raising money from friends and family, getting a business loan, crowdfunding your idea, getting a grant, or applying to a business incubator or winning an entrepreneurial contest.
No matter which route you choose to follow, the most important thing to remember is that where there’s a will there’s a way and the more you do the more you get, in the sense that the more doors you knock on the higher your chances of obtaining what you seek becomes.
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