To help our “idea generators” get their idea off the laptop or out of the garage and on the market, we have assembled some basic funding information and resources that will help you navigate through options depending upon where you are in your development.
Money provided by investors to startup firms and small businesses with perceived long-term growth potential. This is a “go-to” source of funding for those who do not have access to traditional capital. It typically entails high risk for the investor and they usually expect a more developed business plan, evidence of scalability (capacity to grow one’s company and profits) and an exit strategy that positions the company for sale.
An investor who provides financial backing for small startups or entrepreneurs. The capital they provide can be a one-time injection of seed money or ongoing support to carry the company through difficult times. Angel investors give more favorable terms than other lenders, as they are usually investing in the person rather than just the viability of the business. They are focused on helping the business succeed, rather than reaping a huge profit from their investment. Angel investors are essentially the exact opposite of a venture capitalist.
Crowdfunding is a way to fund a project with relatively modest contributions from a large group of individuals, rather than seeking substantial sums from a small number of investors. The funding campaign and transactions are typically conducted online through dedicated crowdfunding sites. Contributors may be making donations, investing for a potential future return on investment or prepaying for a product or service.
These sites are “hatching” all the time but the more established include IndieGoGo, Kickstarter.
There are several categories of “traditional” funding source - family and friends, banks, credit unions and government loans fall into this category.
Family & Friends
Often the original source of seed capital. These people are generally true believers in the person, product or service proposed. Sometimes, this investment is offered interest free. Sometimes, friends and family will invest but they expect to be re-paid or become equity partners with a stake in the company’s success and profits. When working with family and friends, it is vital that everyone understands the expectations and the “terms” of the investment so as not to jeopardize the relationship.
Banks & Credit Unions
Interest rate business loans are cash or lines of credits made to those with good credit, collateral or assets, an excellent business plan or record of performance. Low risk loans are made with the assumption that those who qualify have the ability to repay loan payments in a timely manner.
There are many state and federal government-backed loan programs available for those in certain stages of start-up and business development. Qualifying for these loans generally requires a solid business plan, capacity to re-pay the loan and a commitment to accountability.