How to Find Critical Funding Resources for Start-Up Businesses
It is not often that a business starts with spending money. In general, a business emanates from an idea and what follows is a scramble to find all the necessary resources: funding, technology, product plans, sales strategies, distribution plans and a neverending list of action items for a business owner. Knowing where to find the right resources for a business will be the difference between a highly effective entrepreneur, and one that is constantly looking for what they need.
The Best Places to Find Money, Advice and Support
There is a reason an angel investor is called an “Angel”- because they seemingly come from nowhere and can rescue a business idea with their capital. An angel investor in general invests their own money, as opposed to a venture capitalist who typically manages the funds of multiple angel investors to pool their resources for the maximum return.
The path to finding an angel can be a difficult if one does not know where to look (Michael V. Copeland, How To Find Your Angel Investor; February 28, 2006). Personal connections can be the best resource for entrepreneurs. Family and friends often have the most faith in a business owner and can be the most willing to provide an investment.
Getting What You Cannot Buy
Another benefit of a financial angel is the potential for a mentor to provide access to a network of professionals that can be a critical support for your business or even customers. The ability to capitalise on the unique access an investor has within an industry could be a major competitive advantage for a business owner.
Improving the Chances for Funding
To help support a business idea, entrepreneurs should be prepared with the right level of business details that explain, define and sell their business idea to potential investors (Tom Markel III, Increase Your Chances of Getting Funded With The 5C’s of Credit, 9/10/2009):
- A complete business plan should be in hand. If you do not know where to start, check out a professional service that can help write up your plan. These services can be found through consultants or through online resources such as elance.com or ibank.com;
- Know what type of collateral you may be able to offer;
- Explain your personal financial investment. Commercial lenders and angel investors always want to know that the entrepreneur has made some financial contribution towards the investment of the business.
A 10 year analysis of 100 U.S. business start-ups revealed that at the end of the 10 years, only 29 survived (Scott Shane, Startup Failure Rates – The REAL Numbers, April 28, 2008).
In addition, the type of industry played a major role in the success rate of the business. After four years in business, the information sector saw just a 38% success rate while the health services industry had a 55% success rate (Scott Shane, Startup Failure Rates Vary, April 28, 2008).
When The Answer is No
More often than not, a business owner will exhaust his or her financial resources leads be it from friends, family, business angels or commercial institutions. It is imperative, at this juncture, to re-assess the business strategy and consider alternative means to generate cash up front, for example, such as using a web portal instead of a traditional storefront. Particularly, if a commercial resource declines to provide funding, this should be taken as a clear indication for the entrepreneur to fine-tune or revamp the business plan accordingly.
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