If you’re thinking about starting your own business or are already in the process of doing it, the question of whether you should raise some money for your venture will inevitably come up. It’s a good question and one you should be asking. I’ve spent a better part of my career being a venture capitalist and investing in small companies. Then I went and launched my own company called Work It, Mom!, which is a community for working moms. I’ve learned a lot about raising money from my experiences and I wanted to share some of it with you. I hope you find this useful and I am always eager to hear your reactions and questions, so please post them in the comments section.
Here are my 5 tips for raising money for your small business:
1. You don’t need to raise money to start a business and many businesses won’t require you to get outside funding at all.
You can start many businesses without much initial investment. Business cards are cheap or free, there are many ways to create a simple website without spending a lot of money, and you can start networking without going to expensive events by joining online communities and becoming an active participant in blog discussions that are relevant to your business. Before thinking about raising money, think about how much you can achieve to get your business going by spending very little money.
Here’s an idea that I’ve found useful when thinking about funding a business. Create a list of all the expenses you think you will have in starting and running your business. Depending on what type of business it is, this list will include everything from marketing materials, website, logo design, association fees, product development, marketing budget, PR budget, and so on. Then go through your list and next to each item write down a few ideas for how you can get this item done by being extremely frugal. For example, use free business cards from a place like vistaprint.com instead of paying for fancy ones; instead of getting a dedicated designer to work on your logo, check out a place like Logoworks.com where prices are much lower; find a free or very cheap way to get your website designed and hosted, and so on. Get in a frugal mindset and try to minimize your start-up expenses. The more progress you can make in your business without raising outside capital, the better off you’ll be.
2. Focus on generating revenues.
The best source of capital for your business is revenues. So before you think about raising money focus on how your business will generate revenues. What product are you selling and what will your clients be paying for it? Check out your competitors and their pricing. Think about how soon after launching your business you will be able to generate some revenues. For some businesses, like consulting, revenues come quickly, for others, like advertising-based internet companies, revenues come only after a certain level of traffic is achieved. Thinking about revenues and when you can realistically start generating them will help you plan for when you might need to raise some outside capital.