10 WAYS TO RAISE CAPITAL - AmericanInno · “bootstrapping.” This is an important first step for...
Transcript of 10 WAYS TO RAISE CAPITAL - AmericanInno · “bootstrapping.” This is an important first step for...
1 0 W A Y S T OR A I S E C A P I T A L
F O R Y O U R C H A R L O T T E S T A R T U P
Running out of cash is one of the top
reasons star tups fa i l . F ind the funding
you need with these capi ta l- ra is ing
strateg ies .
Credit: Busakorn Pongparnit, Getty Images
Raising capital is one of the biggest
hurdles startups will have to face
when building the groundwork for
their organization. Without the proper
funding, it won’t matter if your idea is
the greatest thing since iPhones were
invented.
Running out of cash is one of the top
reasons for startup failure, according
to CB Insights, and roughly 75
percent of startups fail within the first
year.
In order to combat startup failure,
entrepreneurs need to be more
strategic about raising capital for their
businesses. By understanding the full
range of options available to them,
startups can be more successful in
their capital raises and pave the way
for continued growth. There are lots
of resources available for Charlotte
entrepreneurs, and combining a few
of the 10 methods below can give you
a great starting point for your
business.
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One of the most common ways for
businesses to secure the cash they need to
get started is through self-funding or
“bootstrapping.” This is an important first
step for entrepreneurs because it signals to
investors that you’re serious about your
venture.
According to the U.S. Small Business
Administration, the cost to start a
microbusiness or home-based franchise falls
between $2,000 and $5,000. However, every
business is different, and the financial needs
of your startup may vary depending on your
specific industry. Drew Gerber, an
entrepreneur who started his own
technology company, suggests that those
within this space have at least six months’
worth of fixed costs on hand at startup.
Before starting your own business, be sure
to thoroughly research the costs associated
with starting out and moving forward. Once
you’ve done the homework and set aside the
cash, you’re one step closer to building up
your appeal with potential investors.
BOOTSTRAPPINGYOUR BUSINESS
M A C I E M A T AF O U N D E R , M A Z E S E R V I C E SC H A R L O T T E S T A R T U P
" S U R R O U N DY O U R S E L F W I T HP E O P L E W H O A R ED O I N G T H ET H I N G S Y O UW A N T T O S C A L EY O U R B U S I N E S ST O . "
Credit: StartCharlotte
Another great way to raise capital
when first starting out is through
your network of friends and
family. Who knows your talent,
passion, and ideas better than
your friends and family? Their
confidence in your abilities can go
a long way, not only in the form
of financial support but also in
helping to spread the word about
your ideas. It's important to note
that there are significant risks
involved with this method of
raising capital.
FUNDING FROM FRIENDS & FAMILYWhile your friends and family
members may be eager to give
you a loan now, your relationships
with them may significantly
change if your venture fails and
you lose their investment.
Be wise about the investments
you accept, and be upfront about
the risk involved with those who
want to help to avoid unnecessary
backlash if your business fails.
" W H E N Y O UF O C U S O ND O I N G T H ER I G H T T H I N G ,T H E R I G H TP E O P L E C O M E . "
D A L T O N S H A U L LF O U N D E R , O M N I L I F EC H A R L O T T E S T A R T U P
Credit: StartCharlotte
Entering competitions with cash
prizes is an excellent way for
startups to not only raise capital, but
to get valuable experience pitching
their ideas to potential investors.
Competitions of this nature usually
require you to develop a bulletproof
business plan, allowing you to
showcase your product or idea to a
panel of judges.
One of the biggest advantages to
pursuing this method is the media
coverage. Even if you don’t win the
competition, at least you will have
gained publicity for your startup as
well as the skills needed to pitch to
potential investors.
Some of the biggest startup
competitions in Charlotte include the
Atlantic Coast Conference InVenture
Prize, the Carolina Challenge, and
the Charlotte Venture Challenge.
COMPETITIONSFOR CAPITAL
THE UNIVERSITY OF
NORTH CAROLINA AT
CHAPEL HILL
IS AN EXCELLENT
RESOURCE FOR FINDING
AND ENTERING SOME
OF THE STATE’S MOST
EXCITING
COMPETITIONS.
RAISING CAPITAL WITH CROWDFUNDING
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Small businesses can also participate in
incubator or accelerator programs to gain
funding. Slight differences separate
incubator programs from accelerator
programs. While incubator programs seek
to nurture business, accelerators serve to
fast-track businesses for speedy success.
Through these programs, you’ll receive
valuable mentorship from investors and
get the chance to network with other
startups. It’s a great opportunity for
startups to gain insight from those who
understand the market and implement
strategies for sustainable growth to avoid
contributing to the startup failure statistic.
RevTechLabs, QCFinTech, CLTJoules, and
Packard Place all support Charlotte’s small
businesses through their available
incubator and accelerator programs.
BUSINESSINCUBATOR &ACCELERATORPROGRAMS
Banks can be a great resource for
entrepreneurs. If you have a solid,
well-structured business plan that
clearly outlines your profit forecast
and estimated time of maturity, this
might be a great option for you.
When applying for a bank loan, you
have two options: a working capital
loan and funding loan. Working capital
loans are designed to navigate one full
cycle of revenue generation,
leveraging limits with stocks and
debtors. Funding loans are more
involved, requiring a robust business
plan that clearly outlines the
company’s valuation and projection
report.
Loans from banking institutions can be
great for businesses seeking to fast-
track income generation. However,
there is significant risk involved with
such loans, particularly in the form of
collateral loss as this is a requirement
for most loans.
APPLYING FORBANK LOANS
" E D U C A T I O N I SK E Y . T H E M O R EE D U C A T I O N T H A TI S O U T T H E R E F O RP R O D U C TM A N A G E M E N T , T H EB E T T E R W E A R E A SA S T A R T U PI N D U S T R Y . "
R O B B A R K M A NF O U N D E R , P R O D U C T H QC H A R L O T T E S T A R T U P
Credit: StartCharlotte
Acquiring a loan from a microfinance
provider can be a great option for
those who lack access to
conventional banking capital or
loans, or those with poor credit
ratings. Microfinance institutions and
non-banking financial corporations
(NBFCs) are able to distribute loans
to individuals without additional
legal implications like those provided
by conventional banks and credit
repair services.
While a great source for quick
capital, this can present problems
with repayment if the business ends
up being unsuccessful.
LOANS FROM MICROFINANCE PROVIDERSAlso, a microfinance loan tends to be
much smaller in size than those offered
by traditional banking institutions.
" P R O B L E M S W I L LA L W A Y S P O P U PA L O N G Y O U R J O U R N E Y .L O O K A T E A C HP R O B L E M A S AC H A L L E N G E . W H E NY O U V I E W S O M E T H I N GA S A C H A L L E N G E ,T H E R E I S A L W A Y S AW A Y T O O V E R C O M EI T . "D R E W B A R T E K , F O U N D E RG R O O V E W A T E R S P O R T SC H A R L O T T E S T A R T U P
Credit: StartCharlotte
Another way to secure funding is through
angel investors. An angel investor is
someone who already has a huge amount
of capital and who actively seeks out
businesses in which to invest. Many times,
angel investors connect in groups to
analyze business proposals and determine
which candidate is most worthy of funding.
Besides capital, the right angel investor will
also invest time in your business, providing
you the guidance you need to be successful
in your venture. Typically, angel investors
are much more interested in backing off-
the-wall business ideas as they anticipate a
higher return on their investment.
The Charlotte Angel Fund is a group of
experienced investors and is a great
resource for entrepreneurs in need of a
capital raise.
HELP FROM ANGEL INVESTORS
C H R I S D I X F O U N D E R , T H O U G H T P O S T
“ T H E N E T W O R K O FE N T R E P R E N E U RR E S O U R C E S I N T H E[ C H A R L O T T E ]C O M M U N I T Y I S A L LY O U C A N A S K F O R ,A N D W E ’ R E T R Y I N GT O T A K EA D V A N T A G E O FA L L O F I T . ”
Credit: StartCharlotte
SECURING VENTURE CAPITALSimilar to angel investors, venture
capital funds are managed by a
group of experienced professionals
that know how to find and fund
promising startups.
Rather than investing in equity,
these professionals invest in solid
businesses with sustainable growth
models. Once the business they are
partnered with is acquired or there
is an IPO, they pull out and seek
other investment opportunities.
Venture capitalists are invaluable in
that they provide much more than
just funding. Because their interests
are in the sustainability, growth,
and overall success of the company,
venture capitalists provide robust
mentorship and consistently
monitor your company’s progress.
If your company becomes very
successful, there are pre-designed
exit strategies that can enable you
to reap huge profits which you can
then use to re-invest in your
business.
While great for the short term,
long-term relationships with
venture capitalists are few and far
between as they will only remain
loyal to you until capital and
profits are recovered (typically
three to five years). You’ll also be
required to relinquish quite a bit of
control over your business since
you’re giving up a large part of it
to the investor. Additionally, since
venture capitalists tend to seek out
bigger companies with proven
stability, small startups will be less
successful in securing their buy-in.
Credit: Maskot, Getty Images
A great way to allocate the funds
you need is by finding a
government funding program.
You’ll need to submit your
business plan for approval by the
grant committee. Once your
business plan has been reviewed,
you’ll receive the grant funding.
Government funding tends to be
much larger in size, giving you
access to the larger funds
required for starting and growing
your business. However, due to
government bureaucracy, it may
be a long wait until a judgement
is made about your grant. And
when you do finally get an
answer, it may not be the one for
which you hoped.
FINDGOVERNMENTFUNDINGPROGRAMS
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Building a successful business
might be challenging —
especially when it comes to
raising capital. But working hard
to achieve your dreams is also
incredibly rewarding.
Consider combining the methods
outlined above to avoid running out
of cash for your startup venture.
For more resources on raising
capital, growth strategies, and
more, be sure to sign up for the
StartCharlotte newsletter and stay
up-to-date on all of Charlotte’s
entrepreneurial events.
CHARLOTTE INNORESOURCES FORRAISING CAPITAL
" C H A R L O T T E I S AG R E A T M A R K E T A N DH A S P R O V I D E D U SW I T H A G R E A T P R O O FO F C O N C E P T . "
Z A C K Z I T S O SF O U N D E R , M A M U M A R K E TC H A R L O T T E S T A R T U P
Credit: StartCharlotte