Your business is meant to make you money, but it likely won’t turn a profit for the first few months, or even years. Businesses need capital investment to pay the bills in the early going. This article will list many sources of business funding, then explain the common factors in winning over investors.
This article is part of a series inspired by the YouTube video, “7 Leverage Tools The Rich Use To Make Money,” by The Better Men Project. It covers Tool #3 listed in the video, leveraging other people’s money. Understanding how the very wealthy get to their positions can help common people prosper in ways that are fair and equitable.
Sources of Business Funding
Freelancer.com published an extensive list of ways to finance a business (“Funding Your Startup.”) Some of these methods have very strict standards, while others require the ability to pitch ideas and sell yourself.
Bank Loan/Line of Credit: This is borrowing money to fund your business, and paying it back later with interest. Loans require detailed business plans and regular payments. Lines of Credit are like credit cards; they give you a reserve of money to use as you need it, and only pay back what you spend. Both loans and credit lines usually require you to have been in business for a set length of time, and already making revenue.
Grant: A grant is a gift or subsidy that doesn’t need to be repaid, offered by governments, corporations, and other large institutions. They’re usually given to achieve a certain purpose, and are common for nonprofits and scientific research. It’s standard practice to write a grant proposal, and grant writing is a booming business in itself for freelance writers.
Peer To Peer (P2P) Loan: This is like a cross between a bank loan and crowdfunding, in which a group of investors pool their money to loan to a business. The Freelancer article mentions Upstart as the standout example of P2P Lending platforms.
Credit Card: Similar to a line of credit, having a credit card lets you spend what you need and only pay that amount back. It requires you to have a decent credit score.
Angel Investors: These are high net worth individuals who invest in a business. They then have equity in the company and are entitled to part of the profits.
Venture Capitalists: Whereas angel investors are individuals investing their own money, a venture capital firm is a business of its own representing its investor clients. Both venture capitalists and angels are very picky because of the huge numbers of startups pitching to them.
Crowdfunding: This is raising money from large groups of people. In some cases, it’s charitable giving; in others, investors get perks in your business or preorders of your product; in other cases, investors get equity in your business like angels and venture capitalists. Today it’s common to crowdfund on online platforms like Kickstarter, IndieGoGo, and GoFundMe.
Friends and Family: Pitching to your social circle can be very informal, but it’s best to have a clear plan like in the other methods.
Draw On Retirement: In the United States, one can draw business funds from their 401(K) or IRA (Roth IRA’s are ineligible.) You must set up your business as a C-corp, be employed full time by it, and have $50,000 or more in your retirement plan.
Microloans: These are small loans, originally started for entrepreneurs in developing countries, but now available elsewhere. Microlenders are nonprofits and tend to serve disadvantaged groups and individuals.
Presell A Proof Of Concept: This is for when your business sells a product, and you get customers to pay for it before it’s made. This is different from crowdfunding in that it’s one-to-one selling. You must deliver your product on schedule and in good quality.
How To Pitch To Investors
Loans, lines of credit, credit cards, and drawing on retirement necessitate previous income history. To get funding from angels, vc’s, grants, and crowdfunding, you need to develop your pitch strategy.
Convincing investors to finance your business is very similar to selling to customers. Investors need to see the value in your product or service. They’re buying into the future of your business rather than buying for the present moment. Here are some guidelines learned from successful crowdfunding campaigns, venture capitalists, and entrepreneurs. (Sources: Forbes, “6 Hallmarks Of Successful Crowdfunding Campaigns” ; Oberlo, “Crowdfunding Examples: Lessons From The Winners” ; Entrepreneur.com, “8 Ways To Win Over Investors For Your Startup” ; Forbes, “5 (Overlooked) Ways To Win Over Investors”)
Be to-the-point and clear on value: As I mentioned earlier, your business’ value is the focal point of the pitch. Experts differ on how much detail to give in your presentation, but it’s best to lead with value and have your other points support it. (Related: https://xiphoswebmarketing.com/value-the-edge-of-your-sword/)
Great content: While you must be clear on value, the way you express it should engage the investor. You’ll need to read the room; some investors are very serious, while others are personable, and others appreciate humor.
Social proof: Similar to marketing to the public, pitching to investors can benefit from social proof. This can take the form of experience in a related field, testimonials from earlier customers, and endorsements from influencers.
Know how big the market opportunity is: You need to research your potential market and find out how many customers you can sell to, and for what price. Market research happens to be a built in feature of crowdfunding, as a way to gauge the public’s interest.
Incentivize your audience: This should be obvious, because investors expect a return, but explore extra ways to sweeten the pot. This could be additional perks for sharing your business with others, partnerships with other businesses, etc.