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How to Start a Company: Raising Money

David Travers is a partner at Rustic Canyon (http://www.rusticcanyon.com/). In this video he discusses different ways to raise money for your new company.

  1. Raise money through credit cards or bank loans
  2. Raise money through family and friends
  3. Raise money through professional investors

The important things when raising money for your business, to keep in mind, are the different financial vehicles that exist for raising money for your business.

By far, the most common is raising money through your own personal credit cards and raising money through a bank loan, whether it’s through a small business administration or other loan programs that are targeted toward entrepreneurs.

The key thing to remember there is that you’re putting – often, you as the entrepreneur will be personally liable and you’re putting your own financial well-being at risk. The trade office, often, that’s the only money available as you get started.

The second category of people that would be available are friends and family. People that know you and believe in you that are necessarily going to invest because they understand your business or understand the size of the market you’re going after, but know you, trust you and as a matter of your relationship, are willing to invest in you.

The thing to keep in mind there is what I like to call “Thanksgiving dinner risk”, where don’t take money from someone, whether it’s your uncle or your best friend, if it’s going to ruin a relationship that is important to you well beyond and well more important than outside of your business context and into your family or your Thanksgiving dinner or whatever it may be.

Finally, for a very small percentage of companies, it makes sense to think about professional investors, whether they’re venture capitalist like myself, private equity investors, Angel investors, what have you. These are people that make a living out of investing in other companies. They’re going to go only for super high-growth companies generally that are in very exciting, very high risk and high reward categories of business and market opportunities.

If you’re in one of those businesses that potentially works for that category of business, understand that that category of investor is going to be going after high, high returns and you really have to have your business model, your market opportunity and your high level sales pitch really nailed down. If you think about your potential sources of funding in those three different categories, I think it will help you along the way as you think about how to raise money.