Successful Entrepreneurs Offer 5 Tips for Finding Elusive Startup Funding
When you no longer need their money, investor will flock to your business. The trick is keeping the bills paid until then.
Opinions expressed by Entrepreneur contributors are their own.
Entrepreneurship is a capitalist game. The rich find it easier to fund and operate their startup as compared to those who are not as lucky but trouble finding investors is the last excuse an aspiring entrepreneur has for giving up on their dream.
Most of the entrepreneurs in my book, "How We Did It : 100 entrepreneurs share the story of their struggles and life experiences" are common folks who raised enough funds to kickstart their entrepreneurial dreams.
Here are five lessons they shared:
1. Meet many people. Get your first funding from your immediate family and friends but that is not be sufficient in most cases. Jordan Eisenberg, founder and CEO of Denver based UrgentRx, warns you will need to "kiss a lot of frogs" before you find the person who believes in your company enough to fund your startup.
Jordan made it a point to meet at least one new person every day, at least six days a week. Most were unqualified to fund the business but every time Jordan met someone, he asked to be referred to someone more relevant. Jordan says some of his biggest investors came to him via this "spider web" of networks.
2. Put your money where your dream is. Cashing out your personal savings is scary but this is the only way many startup entrepreneurs hold on to realize their dreams.
When Monique Tatum started her PR consulting business, clients were not ready to pay a retainer fee upfront, as is the norm with established businesses. She solved this chicken-and-egg riddle by cashing out her 401K. That proved a masterstroke. Today, Beautiful Planning is among the fastest growing PR firms in New York. She might not be in business still had she not invested her 401K.
Another entrepreneur who used his personal savings to fund his business was Matthew Griffin, the co-founder of Bakers' Edge. Outside investors only become interested when you no longer need them, he said.
"Our startup funds primarily came from personal savings and a business line of credit from a local bank with our house and cars as collateral on the note,'' Matthew said. "What we experienced is that outside investment takes notice only after you have considerable traction. Ironically, we only had offers after we didn't need the startup money."
Related: How to Raise Money for Your Business
3. Pre-ordering. Outside investors stay away from funding your business when all you have is an idea, or maybe the prototype. In such a scenario, pre-ordering is a great way to get the necessary capital funding from outsiders while testing and validating the saleability of your idea.
One need not be disheartened if the pre-ordering does not take off in a big way. Iftach Orr, founder of Israeli startup PIXDO, believes that a pre-order is good enough to build an efficient team and product. They, in turn, can buy you sufficient time to build your customer base, then attract larger capital at a later stage.
4. Unique value propositions. Established companies in the managed hosting industry insist on long-term contracts with customers, so when RackSpace first launched, they offered something unique. The company offered a month-to-month payment model and aggressively promoted their customer service commitment.
The popularity of month-to-month payment infused the capital necessary for RackSpace to prove the success of their model, said Morris Miller, co-founder of RackSpace who now runs Xenex, a company that makes robots that disinfect healthcare facilities,.
5. Sell the investor milestones, not product. Have a clear vision about your product and what it will look like in the future. But, instead of selling the vision as most entrepreneurs do, present investors with discreet milestones and checkpoints, advised Hill Ferguson, chief product officer at Paypal. He co-founded the mobile payments system Zong that Paypal acquired.
"This will not only give investors more confidence in you because you have a vision and an execution path, but it will also be helpful for you to hold yourself accountable," Ferguson said.
The start-up capital you receive will always seem less than what you think you need. Accept that you will need to bootstrap your business until you are profitable or successful getting your second round of funding.
Related: Self-Financing Your Startup