Today our Ten-minute tip time is HOW TO FUND YOUR BUSINESS IDEAS.
Our show is sponsored by Platinum Pivot a consortium of experienced professionals that share practical business content that helps other professionals navigate challenges.
I am your host, Helen Latimer founder of 925 Resources.
Our guest today is Steve Willson, COO and a Partner at PANOPTIKA where he developed a practice based on the idea of providing custom projects to address their clients’ special needs, taking into account the particular constraints of their industry.
HELEN: In your last video you talked about the importance of validating a business idea, and ways to do that despite social distancing.
STEVE: Today we’re assuming you have done your homework and now have some proof you have an idea that solves a real problem that people have and does so better than what’s currently available. So what’s missing…the money to develop your idea.
HELEN: So where’s the best place for an entrepreneur to find money?
STEVE: The best place depends on your circumstances. Many entrepreneurs started by “bootstrapping” or scraping together any personal funds you have; savings, credit cards or coins beneath the couch cushions. This is the most risky to you in many ways, as you are reducing your personal safety net. But if you’re successful it will eventually pay off and you won’t be giving up any equity in your idea.
HELEN: So what are the next alternatives?
STEVE: Next would be family and friends. You’ll need to have the information you gathered during validation to show them the promise of your idea, and these can be difficult conversations. Again, you may not have to give up equity, but you may be limited in the amount of money you can raise.
HELEN: So what if you have tapped your personal network, but you still need additional funds?
STEVE: Depending on your idea I might suggest Angel investors. These are usually high net worth individuals who support entrepreneurs and most cities have Angel groups who come together to reduce their own risk exposure. The relationship is more formal than friends and family, and your business model needs to be more solid. Some groups take some equity, some offer loans to be paid back when you get your next financing and the best offer usually offer mentorship and introduction to potential customers or partners.
HELEN:. Are there other ways to fund your business without giving up a stake in it?
STEVE: Depending on the amount you are looking for you could explore crowdfunding options such as Kickstarter or Indiegogo. These are most often used for physical products or tech ideas where you can show a prototype. You can start small to get a few items made, then get more feedback before rolling out to a wider audience. It’s often used as a way of pre-selling.
HELEN: Suppose you are getting traction for your idea and need to grow it beyond the sources we have talked about?
STEVE: Then you are looking at a couple of different options, debt or equity. Debt is just that, taking a loan to inject funds into your operation.
This can be a traditional bank loan, if you have personal assets to leverage, or a specialty funding organization such as BDC, who bill themselves as “the entrepreneur’s bank”. They are a Crown corporation who fund small and medium size businesses, especially those who are looking to grow.
When it comes to equity, often you would approach a VC, or Venture Capitalist. There are very technical definitions when it comes to VC funding, and I’m not an expert, but let’s just say they give you money in return for a portion of your business.
Various firms specialize in certain business areas such as biotech, fintech, and so on, so it’s best to get some help identifying who best to approach.
After that it’s kinda like Dragon’s Den or Shark Tank. You’ll get an opportunity to pitch your business idea, get picked apart and then, if they go ahead, get an intensive vetting before you ever sign a deal.
HELEN: That sounds like it covers most of the situations where entrepreneurs can fund their ideas. Any last words to help guide our listeners on how to fund their business ideas?
STEVE: For each of these you are going to give up something to get something. So just ensure you understand what’s in it for the other person; what their expectations are and, especially, their time horizon for trying to get their return on their investment.
If you want to ask Steve more questions on this topic, please email him at email@example.com
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