You transformed your business idea into an excellent prototype that is ready for your targeted audience. Maybe you already have a large order that you cannot accommodate on your own. After all, to fill a large order, you need the funds for production equipment, to pay staff members and more. Sometimes you must spend money before you can make more money through the wide-scale sale of your product.
Before you seek the extra funding necessary to fully launch your product, you need to determine how much control are you willing to give up and the amount of risk you are willing to take. Your answer to this may help you decide what steps to take to obtain the necessary funding for your product.
Build Credibility for Investors
If you have decided to seek funding, you need to prepare a detailed, actionable business plan to present to all prospective funders. While investors want to see your current financial numbers, they also want to see projections for the next 12 to 18 months. In addition to providing financial goals and expectations, prepare the non-financial goals as well. All your numbers and goals should be supported by case studies, panel reviews and testimonials. Spend ample time creating this presentation. Investors may give you positive feedback even if they do not fund your project, and you can use this feedback to improve your pitch for future investors.
Low Risk: Family Investment and Personal Loans
Some entrepreneurs will turn to friends and family members for at least some of their funding. The problems occur if you fail to pay your investors back. Try to have a written agreement and a clear payoff plan that you will stick to, to avoid complicating your personal relationships. Investors find it beneficial when your friends and family members have a stake in your company, as it shows that others believe in your business idea.
If you are looking for additional funding after your friends and family have contributed, a low interest rate peer-to-peer loan may be a good choice. You could apply for an unsecured personal loan at a local bank if you have good credit scores. It is not easy to get as a secured loan, where your personal property or real estate serve as a collateral, but it’s a safer option. Another idea is to refinance your mortgage to pull equity out of it. These options allow you to retain absolute control over your business, but they may be burdensome for your personal budget.
Medium Risk: Crowdfunding
Crowdfunding is an excellent financial solution if you don’t want to keep your product confidential. There is some risk associated with letting others in on your product idea. They may decide to mimic or improve your idea and to compete head-to-head with you. The benefit is that you get to test the market for your product, and you get funded by a wide range of investors who each have minimal interest in the loan. Websites like GoFundMe IndieGoGo allow you to keep the money you gather even if you don’t hit your funding targets. This may allow you to recoup some of your own funds that you put into the project to pay for the prototype development and other related costs.
High Risk: Angel Investor and Venture Capital
If you are ready to give up control in terms of equity and decision making, search for angel investors or venture capitalists. Giving away the percentage of your business can provide you with the funding you need. This type of funding is advisable only if your business requires more than one million dollars. Angel investors are somewhat more flexible in terms than venture capitalists. Seeking venture capital means that one company invests in another and gets reimbursed with equity and large percentage of future profits.
Both options include experienced professionals with broad connections. Keep in mind that some of these investors may want to purchase a majority interest in your company. This gives them some or most control over the business decisions that you need to make. Some entrepreneurs prefer this option because they can often rely on their insight and expertise. For businesses that may grow quickly, this may be the best option.
Many entrepreneurs need investment capital for an initial product launch, and others need the extra funding to take their business to the new level. Regardless of why you need extra funding for your business, have a clear business plan to impress potential investors.
There are various funding options, and they come with some strings attached.
Your decision should be based on your tolerance for risk and for your ability to give up some control over the direction your company takes. Spend plenty of time reviewing these options before you determine the right solution for your current needs.
Heather Redding is a part-time assistant manager and freelance writer based in Aurora, Illinois. She is also an avid reader and tech enthusiast. When Heather is not working or writing, she enjoys her Kindle library and a hot coffee.