Let’s talk about business and two ways to raise money. Trying to figure out how to raise the startup capital for your business is a conundrum faced by many aspiring entrepreneurs. In this article, we will discuss two ways you can go about raising capital to fund your business.
Crowdfunding is one of the most popular ways to raise money now. If you don’t know, crowdfunding is the process of receiving donations from individuals that could potentially lead to thousands of dollars. Individuals that donate money will receive special rewards, free product or even given the chance to co-design the product. Kickstarter and Indiegogo are two of the best crowdfunding platforms for entrepreneurs. Brands like Pebble Smartwatch still hold the record for the highest funding project through Kickstarter. They raised a whopping $10 million for the development of their first generation smartwatch. Although this way of raising capital is great there pros and cons to each that may sway a person from indulging in this kind of raising of capital.
Upside to crowdfunding
It provides a strategy to pitching your business plan to the masses which in return builds a genuine fan base. Another reason to opt in for crowdfunding is to bypass traditional bank loans.
Downside to crowdfunding
Having a story to tell will be one of the deciding factors in whether people feel the need to invest their money to your cause. Kickstart platforms only allow the money donated to be given out if the campaign goal has been reached. Lastly is a fear of not raising the right amount of needed capital. When this happens, the campaigner runs a risk of possible lawsuits if the project doesn’t launch.
An angel investor is a wealthy professional or even another entrepreneur who is willing to donate thousands of dollars in return for a piece of your business. Meeting the U.S. Securities and Exchange Commission’s stipulations, these investors must have a net worth of $1 million and make $200,000 a year (or $300,000 a year jointly with a spouse). Angel investors get equity in your company in exchange for large sums of money. Usually, these large sums of money start at $600,000 and above because these investments usually involve multiple investors.
Downside to angel investments
There are always risks to involving others in your business, especially the financial part of it. As stated above, an angel investor or investors will require equity in your company that can range from 10 percent to 50 percent of your business. This doesn’t sound like a bad idea until you are fired from your own company by the same group of people who invested in your business. This happens only when large amounts of equity are given up in exchange for the investments.
Where to find angel investors:
Long before the internet, your local chamber of commerce or your local Small Business Development Center was your source. Websites like the Angel Capital Association (ACA) provides an online listing of angel groups in good standing. Angel List and MicroVentures can help you with your search.