I'm going to assume that when you write "venture capital" what you really mean is an investor -- someone who will write a check in exchange for a share in your business. For the record, venture capital refers to a few hundred very specialized professional firms that raise hundreds of millions and, in a couple of cases, billions of dollars from companies, organizations and extremely wealthy individuals, and then invest that in chunks of several million dollars in high-profile startups. You can forget venture capital. They most likely aren't interested in what you're doing.
So, if you're looking for an investor, here's what you need to ask yourself: How much of an ownership stake would you expect to claim if you wrote a check to a company for it to purchase the mold, build the inventory and kick-start the marketing? You'd most likely want to own a big piece of that company, right? You'd better be prepared to give away a big chunk of the company â 50 percent or more -- in exchange for serious money.
Maybe you should be looking for a more innovative way to find money, like from someone who knows you and your product and believes in you, and would be prepared to loan you the money in exchange for a higher than normal interest and payback guarantees. That way, if the company works out and you sell it, that person doubles their money before you take any.
Another option would be to offer a permanent royalty percentage. In either case, you won't give away ownership and won't have to have a partner forever.
The next question is: Where do you find such a person? Go to your local Small Business Development Center (SBDC) first, then check in with Service Corps of Retired Executives (SCORE) to find people who are involved in entrepreneurship and can help you sort through the options. It won't be easy. Unless you have a great product that undoubtedly demonstrates its value, and you have a believable track record and business history, it's going to be a hard sell.
There are other alternatives to seeking investment. The best would be to land a contract with a company that's ordering your product in volume to put into distribution and will advance you enough money to get the mold and the inventory. Or perhaps you could partner with a similar business that already has distribution channels.
Also, don't discount seeking a U.S. Small Business Administration (SBA) loan, if you're ready to risk your own assets. Go to your favorite local bank, as it is likely to handle SBA loans. If it doesn't it should be able to tell you which one does. The SBA will guarantee a substantial portion of the loan to lower risk for the bank. But you still have to take on part of the money yourself, so you end up risking your own assets.
Without a doubt, I think the best financing is sales. Finding investors for a project like this is extremely unlikely and, if you do, you'd better be prepared to live with the investor for a long, long time. I hope you sell a few in advance, use that to buy what you need, build some, sell some, then build some more, and end up owning it all yourself and owing nothing.
Related: How to Find the Right Investor
Related: From Friending to Funding
Question added to topic Franchises • May 17, 2011
Can I Find an Investor for a Seasonal Product?
I have a product which is seasonal in nature as it is used for entertaining purposes during the spring and summer months when people use their patios, pools and go to the beach. I know its not in the hot technology or healthcare markets, but I am looking for capital to purchase a mold, have parts injection molded and then buy advertising time on TV to present the product to a large audience. Do you think its possible to find venture capital for this type of product? Is there a better way to raise money?