Ever had an idea so ingenious you wonder why no one had never thought of it before? And suddenly, your mind starts churning out all sorts of plans to profit off this amazing idea of yours.
You have a concept and you build a business plan, however, you don’t have the funds to do anything about it. Will you just let die like this or will you try to look for a way to get this idea of yours off the ground?
If you really think that you have a goldmine in your hands, it might be worth looking into these four options to kickstart your future million peso business.
1. Bootstrapping
The simplest and most obvious way to fund your startup is to use your own money and time. If you have a decent amount saved up, an inheritance you haven’t touched, or a few investments you can liquidate, you should consider dipping into them to fund your business.
In the first place, you’re the one starting the business. When you came to the decision to take that giant leap, it means that you have faith that your idea will succeed. What better way to prove your belief than by investing your own money? As the conceptualizer, you should always be ready to take the first step. No one will give you money for an idea that you, the creator, won’t even support yourself.
Using your own funds will ensure that you remain in full control of your business. There won’t be any stakeholder meetings full of family members, friends, or investors who keep on asking about what you did with their money.
Utilizing your own assets will also keep you from getting buried in debt. Because your funds are limited, you will be forced to spend wisely and keep to your budget, a skill any businessman (or woman!) needs to master.
Most importantly, bootstrapping will allow you to focus on your customers rather than your investors.
2. Investments
If you don’t have the financial capability to bootstrap, you can look for investors to help you start your business instead. There are many different kinds of investors out there, and consequently, many different ways to invest.
Angel Investors
Angel Investors are a great if you can successfully pitch your idea to one. They are typically wealthy individuals or groups who use their own money provide seed funding to help startups get off the ground, or who act as secondary investors and help new companies grow. Google is probably the most well-known company in the world that grew from this type of investment.
The biggest disadvantage of angel investments is the difficulty in obtaining one. Like all pitches, you must have the charisma and articulacy to sell your idea to investors who have probably heard it all.
Also, remember that angel investors put a lot on stake for the companies they fund, they’ll be sure to check your family, education, financial status and etc. They also tend to have a preference for high potential return business ideas to offset their losses from failed ventures.
Venture Capital
If you’re having a hard time finding an angel investor, you might want to try pitching to a venture capitalist. Unlike the angels, for venture capitalists, investing in high potential firms is their job. The good thing here is that there are more of them out there, the bad thing is that there are more caveats involved.
An angel investor’s involvement in their investment can vary, but be informed that securing the support of a venture capitalist is an automatic agreement to giving them a say in how your company runs.
Trying to convince a venture capitalist to invest in your business may take a long time, as they will need to carefully study how their company will be affected if they get involved with you, but the amount you receive is generally much larger than what and angel investor will give you. However, note that they may also ask for higher returns in exchange.
At the end of it all, a venture capitalist will always have an exit plan that ideally involves selling his stake in your business for a higher price. Nothing personal, that’s his job. Your job is to choose carefully if you go this route.
Personal Connections
While this is a viable and likely safer method to securing investments, it can also potentially get messy.
Mixing business with your personal life always carries a risk. You won’t be able to stop your family and friends from interfering with your plans and they’ll likely expect status updates more often than formal investors. And if by some reason your business fails, you will no longer have them as a safety net, at worst, you might even end up ruining your relationships with them.
This isn’t for all cases though; you will need to assess who among your family or friends you share a mutual trust with. If your business idea has a traction and you can see that it truly has a high potential of succeeding, this is most likely one of your safest investment sources.
3. Bank Loans
Most banks will offer long term business loans that can help you jumpstart your business. Again, your decision will come down to how confident you are in your business idea. If you believe that you will be able to make enough of a profit to make monthly payments to the bank, then by all means do it.
There are many benefits to bank loans. They generally have a lower rate of interest compared to short term loans. They should also be considered if you’re not a fan of reporting to a board full of investors. You can also raise your credit score if you pay your dues in a timely manner.
However, there are disadvantages as well. Bank loans aren’t flexible, whatever amount agreed on between the lender and debtor is fixed and cannot be adjusted despite the fluctuating costs of running a business. Defaulting on a loan can also lower your credit score, making it more difficult for you to get a decent loan in the future.
If you do decide on a bank loan, make sure you meet all the requirements of whichever bank you choose to take out a loan from. Also, if you applied for a secured loan, you will be asked to put up a collateral. An unsecured loan, on the other hand, allows you to borrow money without collateral at the possible expense of risking partial ownership of your business.
4. Alternative finance
Recently, there has been a rising number of businesses that have roots in alternative finance channels like crowdfunding and P2P lending.
Crowdfunding, in essence, is a method of raising money through the help of a ‘crowd’, usually people from the internet. Entrepreneurs can use platforms like Kickstarter, Indiegogo, and Crowdfunder to ask donations from likeminded people or individuals who see potential in their product or service. Some successful businesses that started from crowdfunding are the Oculus Rift and the Pebble Smart Watch.
P2P or peer-to-peer lending, on the other hand, allows ‘borrowers’ to directly borrow money from ‘lenders’. It removes the middleman from a loaning situation and thereby allowing the borrower to loan money for less interest and the lender to invest in a project they want and claim higher returns. Be warned though, these transactions are not usually protected by government agencies.
Using your own savings or borrowing from someone and risking debt might seem scary, but if you think your idea has value, don’t be afraid to pursue it. In the words of Noah Everett, founder Twitpic:
“Don’t worry about funding if you don’t need it. Today it’s cheaper to start a business than ever.”
Rock your way to abundance!
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