About 80 percent of small businesses are self funded, according to Entrepreneur. That means the majority of owners put up their own money to get things off the ground. But what if you’re part of the 20 percent that can’t fund your business yourself? Have no fear. You can still start your own company without having to put in money.
How? You just need to find the right investors.
And there are three effective ways you can do that: crowdfunding, connecting with angel investors, and asking family and friends. Here are the tips you’ll need for each approach.
Fund your business by tapping into your trusted network
Although you might feel uncomfortable asking a family member or a friend for help, it’s actually the people closest to you who are more likely to open up their wallets.
No matter who you’re asking — your mother or your roommate from college — always prepare a business plan.
Remember, you are asking them to put their hard-earned money on the line. In return, you need to show them why they should have confidence in you. Tell them how your business will operate, how long until they get their initial investment back, and how you plan to be successful.
Connect with angel investors
Unless you have wealthy friends and family members, you probably won’t get enough money to cover all of your operating expenses from your network alone. In that case, you could consider bringing on an angel investor — a successful business person who is looking to invest in small businesses to further grow his or her net worth. Angel investors can sometimes provide the most funding because they typically have deep pockets.
The downside is that many angel investors require a very high return on their investments because financing a startup is risky.
If your company fails, they lose their investment. Or if you have future investment rounds, their investments are subject to dilution.
There are many online resources available to help connect you with an angel investor, such as the Angel Capital Association. You can find individual angels or angel groups. Just remember to be prepared with a business plan when asking for their financial support.
Another way to fund your business is through crowdfunding. This allows many people to contribute small amounts of money through an online portal and receive something in return.
For example, say I want to open an online business that needs $7,000 in starting capital. I can post my business proposal on a crowdfunding website and wait for a response. And to make my post more attractive, I can offer a short presentation about my business idea and how investors can earn money if it succeeds. If people are interested, they can contribute any amount of money they wish until I get a total of $7,000. Investor A may contribute $100 while investor B contributes $400 and so on until I reach my goal.
There are many crowdfunding websites, so do your research on which ones are best for your business.
Choose what works for you
Any of these three options can help you get your business off the ground. But each comes with its own level of risk. Choose the option you’re most comfortable with so you can get busy turning your idea into a reality.