If you are thinking about starting your own business, your mind is undoubtedly full of questions. One of the most important questions will be: How am I going to raise the capital needed to get started?

Unless you’re independently wealthy, your financial support will come from outside sources. This financial support can be either from a loan, from banks or family and friends, or an investment resulting from the sale of stock in the new business.

Most entrepreneurs finance the early start-up stage of their business with personal savings. Service and Internet-based businesses, particularly, don’t require much capital and are often started with just the personal savings of the president and spouse. Personal borrowing from a bank is another possibility. Of course, this loan will have to be secured with a personal guarantee.

Other sources of financing are family, friends, and close business associates who are brought in as investors. You offer them the opportunity to buy a share of your company. With all investors, you should have formal, legal investment agreement to prevent disputes in the future.

There are many federal, state and local financial programs intended to encourage people to launch new businesses. The best place to start is to either contact or go to the web site of the U.S. Small Business Administration and get a listing of their programs for small start-up businesses. You’ll be able to get a description of each program and resources for each individual state.

Venture investors, whether individuals or venture capital funds, make their money by investing in start-ups. They usually have a lot of money available, but they are also very selective. There are three types of venture investors:

1. Individual venture investors, also known as “angels,” are wealthy individuals looking to invest personal money in new ventures. One of the advantages of turning to individuals is that they often decide quickly whether or not they are interested, without the bureaucracy or extensive investigation of more formal investment groups. On the downside, locating enough interested individual investors to finance your start-up can be difficult.

If you decide to approach individual investors, work with a knowledgeable lawyer completely familiar with the government regulations involved in this type of investment.

2. Institutional venture funds are usually limited partnerships in which the bulk of the money is supplied by passive limited partners, such as insurance companies or corporate retirement funds. The portfolio is managed by a general partner or group of general partners. These partners or groups have lots of money and because they are in the business of financing start-ups, they can be a valuable source of experience and expertise.

However, the process is very slow as the funds carefully examine all factors and risks. In addition, venture capital funds drive tough financial deals on issues such as determining what they will pay for your company stock. When you approach a venture fund, don’t appear desperate for money, because you may pay dearly for it.

3. Corporate venture investors are divisions of large corporations usually looking to invest in start-up companies in related business areas. One major advantage of raising money from corporate investors is that in addition to providing money, they can provide both technical and management expertise, and because they have goals other then pure financial gain, they may not drive as hard a deal as venture funds.

The major drawback: Corporate funds often want to eventually gain control of the company in which they invest, a condition you find unacceptable.

Your company will probably need some kind of track record before you should think about selling stock to the public. However, many start-ups have gone public successfully very early in their corporate lives.

Raising outside financial support for your company is a sales person’s job. Forget about being president of the company, an innovative design engineer, or whatever previous positions you held. You are now a salesperson, and what you are selling is your business, specifically, your idea for a product or service, your management team and your knowledge of the market.

Selling is a process with well established techniques. There are many books, audio programs and educational seminars that explain these techniques, from developing leads to planning and delivering your sales pitch to answering objections and closing the deal.

Read these books, listen to the audio programs, take the seminars and learn these skills. Otherwise, you won’t stand much of a chance in getting the money you need to start a business.

Copyright©2007 by Joe Love and JLM & Associates, Inc. All rights reserved worldwide.


By: Joe Love

Tags: Bur, Business Associates, Family And Friends, Family Friends, Finding The Money, Internet Based Businesses, Investment Agreement, Legal Investment, New Businesses, New Ventures, Personal Guarantee, Personal Money, Personal Savings, Small Business Administration, Start Ups, Starting Your Own Business, Ups, Venture Capital Funds, Venture Investors, Wealthy Individuals