For the majority of entrepreneurs, the first source
to raise capital are 4 Fs. That’s means founders, friends, family and
fools. When someone launches any project, it is typical to raise money from
these groups. First three seems to be obvious, but why fools? Due to risk
at this stage of project which is unbelievable high. Experienced financial
investors would assess such a project as not worth investing in. However, fools are not professional investors. They lend
money mostly because of empathy.
The second possible step to raise money is seed
fund. Sometimes it is common to use all F's and seed fund - the seed
money. Seeds can offer to an entrepreneur a lot more funding, but in this case an
entrepreneur must have also something to offer: a business plan, market
research and “know-how“ to for
convincing fund suppliers. The more info you give - the less risk an entrepreneur
and an investor takes. That way an entrepreneur gives away less share of his
future company. Often, because of high risk, seed funds are donated or
grant-aided by a government. Polish domestic seed fund is known as AIP Seed
Capital. It has a investment program with simple rules: no matter what the
project numbers are, the fund invests 100.000 PLN and takes 20% of equity
stake.
Companies at a little higher level of maturity can
look for investment opportunities from business angels. Basically speaking,
business angels are experienced people with money. They want to invest that money
in new high growth potential projects. What is very important and makes this
capital different from other sources is the added value. Business Angels
provide knowledge, networks, connections or infrastructure. Basically speaking
– “know how“. If of course project
seems to be hefty and risk is at a healthy level. An entrepreneur should be
very picky and look for great added value from his angle investors.
A club of BA investors has the same
goals as a single BA and additionaly provides the risk diversification, gathers
and collects people with ideas and has high ethic standards. Typical investment fund
is a way higher than single BA, usually between 400.000 PLN to 5M PLN but
sometimes it can exceed even 10 M. It’s good to be familiar with two important
words from the BA slang: pitching and teaser. Pitching is
about presenting an idea in about 5 minutes to possible investors. And the teaser is one page document that describes briefly the business.
Have you ever tried to start
your own business? If yes, how did you get your funds?
Comments
In my opinion the best idea is to get interest about some European Unions funds. There are many projects directed to young people who want to start their own business.
For me if i want to start my own business, would prefer their own funds. Take loan for very risky business is not very smart but give a greater part of the company to stranger can be really fatal for our vision of product.
I think that on the beginning the easiest and safest way to get funds is from Mom & Dad Foundation. It won't be millions, but it might help you prepare some demos, business plan so that you can start raising funds in other sources you mentioned.
If I ever started a company, I would of course try to raise funds by the help of family and friends first. Founders often give money but when the project belongs to them, but of course I've heard cases that private companies etc. invested in someone's project but they always wanted something in return, no one gives money for free.
I can agree with Damian that if you believe in your own vision, you should feel comfortable with investing your own money. What's more, when I will try to start it, I'm sure I will believe in it. For me, it's inseparable part of starting business. I'm the person, who don't do something unless believe in it.
Some time ago, I thought about different ways of investing new business in my case. It depends on its type, but I think I'll try to invest my own money and get a credit.
But I think it's amazing that people with great and innovative business ideas could find the help in such funds. And in my opinion, government should support the young entrepreneurs - this is the future. Of course, if they worth it.
Another way to get funds for your company is by simply saving money. If you want to start a business let's say in a year you could start saving money, so you won't starve during first months.
Sometimes it's better to think what you REALLY need for start - not what you initially envisioned as your new, perfect business. But it's difficult to judge because it's a very broad topic.
Maybe I will look for money on Kickstarter (if I will have something special to show) or maybe I will take a loan if I needed better tools, but only if I was ABSOLUTELY sure about my idea. I know a few people who managed to get European Union grant, and I think that's a great help in starting, but I don't know if it's still possible.
I have no experience of geting funds but a lot of my friends get European Union grant and as I know it was great decision. Own company give us independence and opportunity to develop. I think is worth taking a risk and try to work on your own.
In my opinion it is a positive aspect when there is such an opportunity to get funds and become supported by a certain institution. I think it is better to look for such support than taking a loan, because first we should find out whether we can find an accessable way of receiving funds without a return charge.