Money for Money: Advice for Gaining Access to Capital for Your Business Idea
I have advised many entrepreneurs over last several years seeking advice on how to gain access to capital from investors or bank. One misconception that I encounter the most with entrepreneurs in need of start-up capital that I advise via the NJ Small Business Development Center at The College of NJ or otherwise is that they believe they do not need their own money to start their business. Unfortunately, this is not the case. Even a business leader with the best fleshed out idea is likely NOT to obtain money for their idea without having their own capital or assets of value to present as collateral. You absolutely must have money to get money especially if approaching investors.
No cash of your own? Well, if you are fortunate enough to have friends and/or for family that are able to provide you with a infusion of cash, that is likely the best option for an entrepreneur who desires to gain access to third party investor capital. When approaching your personal connections set their expectations - people who loan or give money to someone for a business idea often expect the money to boomerang back to them in a year or so. That is simply a false sense of hope. Be sure to confirm that their money is in good hands, but that in business there are no guarantees. By being upfront, those who were on the fence about handing over their cash may say no, but others who believe in your idea and are willing to take the risk with you will slip you some loot. One note of caution, never give up too much equity in your business that can dilute your own stakes in your enterprise. If you can borrow money from friends and family without giving up any equity at all (instead personal loan with points for example) - do that.
Bottom-line, private investors want to see that you have some skin in the game. Any smart investors want the opportunity for a return on their investment, that is more likely to happen if the business owner they are investing with has just as much - if not more- to lose as they do. When presenting your idea, be armed with a strong business plan which includes a solid marketing plan and explain ways in which you have either spent or allocated your personal investment in the project. Have clear brand messages including your well thought out mission, vision and value proposition statements that clarify your purpose for starting your business as well as effectively share your long term business strategy. Most entrepreneurs skip the brand messaging strategy in the beginning and find that it is difficult to market their business without it later on. Lastly, show up to your investor pitch meeting with an arsenal of verifiable data points that validate your business idea and be prepared with facts to deal with any objections that you encounter during your pitch meeting.