Although certain projects can be realized in about a minute with just your pocket money, this does not mean that the principle is valid for every single online business. In fact, it does not matter whether you start your website in a humble manner, the quantity of money invested in it will seriously improve the time for achieving the set goals. That is why the financing of your project is something you should consider before you start working on your idea.
Family, relatives, friends
The most standard procedure of raising money is to address your family, relatives, and friends. This is also the natural way to do it. If you have an idea and you need a few thousand bucks, it is most logical to approach your closest people for support. It is not important whether the support will be manifested in the form of gratuitous financial aid or a loan. Most often, these people are the first clients of your business. They test it for free, give you feedback for free, and even pay for the products and services you offer with the idea to contribute to your success. Others will do you favors for free, such as keeping your accounting records for some time, assist you with their personal and business contacts, and help you get on your feet, at least for a while.
The positives in this type of financing is that it gives you composure because you do not have to return money, no one pressures you with questions whether the goals have been achieved, and you do not worry about the legal side of the affairs – distribution of dividends, or board of directors interfering in every single decision you make. Your closest relatives and friends support you because they like and love you and not because they expect something in return.
No matter what initiative you undertake, you should count on these people – they will be right behind you both when you win and when you fail… as well as in the new challenges you take on, although you have failed before!
More and more often online projects are financed in advance, for months or years ahead, by different funds financing start-ups at the exchange of a share in the company. However, this will do more harm than good, and I will tell you why you should consider this option very carefully, and whether to use it or not. If you want certain start-up fund to give you BGN 50,000 or BGN 200,000 to start your business, you should ask yourself the question whether you know what exactly to do with this money. Is money the problem that stops you from starting your business right now? Don’t you already know that most of the ideas can be launched without money?
If you are ready to start your project with or without financing, then you could really use the money, but my advice is to really start your business without financing. This way you will feel the real responsibility of realizing the project. You will really care about how fast you start, how much money you make, how much you spend, whether you observe the deadlines or not, how many people you employ, and whether they work hard enough.
If you have the money, there is a great risk of easing off because the next couple of years are guaranteed and you have 12 or 18 months before starting to make profit from your project. This is disastrous for your business because every single day you delay making your business profitable – you lose money and positions.
If you realize your project and launch it, although hard and slowly, you will understand whether it is really a good investment or whether the initial enthusiasm has blinded you and stopped you from seeing the negative aspects and shortcomings. If your project turns out to be a failure, you should give up and start a new idea. If it is successful but you are faced with lack of financing to realize its full potential – it is time to address some of the start-up funds for assistance.
The reasons why I recommend you to use a start-up fund when you already have something behind your back are several and they are, as follows:
- You show that you have already invested in the project – money, time, nerves. This is highly important because it demonstrates that you believe in yourself enough to succeed.
- When you have an already launched project, you will start one or more rounds ahead of the others, who only have an idea. Having an idea is one thing, half or fully realized project is quite another.
- You will get more money from the start-up fund because investing in an idea is riskier and hides pitfalls, which neither you nor the investment fund have any idea about, although they will try to protect you against everything they can think of. On the other hand, investing in an already developed and working project cuts the risk and loosens the purse strings of the people with money, because they see what they are going to invest it in. Last but not least – the money-making machine can be started immediately, not in 8 or 12 months.
- The idea is not a subject of a patent! If you are simply tossing around ideas, claiming that they are yours, you have got things wrong. Everyone, who has heard your idea may realize your project and even patent the ideas right under your nose, which will tie your hands in the future.
Investment funds are different in structure, working methods, and interests, but generally, they can be divided into several types. Some of them finance ideas – they give small amount of money for short period of time to see whether the team has the potential to handle the project. If things go well, the financing continues in either small or bigger shares when concrete goals are achieved. If not – congratulations on your first failure! This type of funds may ask for 5% to 15% of your business in the form of shares in the company.
Other funds finance projects that are already in the second stage and have at least minimum working prototype, a beta version, partially or completely realized product. They invest much bigger sums, compared with those financing ideas, but they also ask for a bigger share of your business – 15% to 30%.
There are also funds that provide financing after you have actively worked for a few years and you have already started making profit. If you need money to seriously expand your business, develop new products and services, they will be happy to provide you with up to tens of millions at the exchange of big share of your company – 50% to 70%.
When you start a business with an investor, no matter whether a private person or a fund, you should bear in mind that you have undertaken an engagement to achieve concrete goals. The target of the investor can be summarized this way – multiplying 5 to 10 (or more) times the sum invested in your business. The investor is not interested in the qualities and merits of the project but in the profit. If you make profit, the investor is happy. That is why you should make a fair assessment of you plan – whether you simply want to do something because you find it interesting or whether you really think that this idea can be really profitable.
You should bear in mind that if you set yourself low goals, you will be of absolutely no interest to the investor. If you set yourself high goals, there is a great chance for your project to turn into something much different from your dream because you will have to work much harder and you should be mostly focused on making money – something that most of the ideas and start-up projects are missing.
My personal experience shows that everyone plans their project as a series of funny and pleasant activities for consumers, without knowing how to make the project profitable and how to convert the functionalities used by the consumers into cash. And this is the thing you should start with.
To save you time, I will make a shortlist of what you should be absolutely prepared for before applying before an investor or a fund:
- A brief presentation of the project/business: These types of presentations are known as Pitch Deck. You will find more on the subject in this article.
- A budget showing the items of revenue and expenditure (in detail). Your goal should be to reach the break-even point on the 18th
- A team that is well-informed and actively involved in the future project and that is ready to leave their current jobs or cut their current actives at the very moment the investment is made and join your new business.
- Realized prototype, beta version, or partially working project.