Funding Your Startup

Where to find the cash you need to build your company

The following is an excerpt from Funding Your Startup: The Complete Guide. You can download the entire guide here.

Let’s say you’re planning to build a new social network. Here’s some bad news: building and scaling a web app — and turning it into a real business — isn’t cheap. If you’re a developer, great! If not, you’re going to have to either a) find a technical co-founder willing to do the work for free in exchange for a chunk of the business or b) hire someone to build it.

As a founder, you’ve got to figure out where you’re going to get the cash to get your idea off the ground. Once you’ve got a real product and a few users, you’ll also need money to scale it.

Startup funding happens in four distinct phases. Let’s talk about the first.

Phase 1: By Hook or By Crook

Your goals:

· Clearly define the problem your product will solve.

· Test your solution with real people to see if they’d use and pay for it.

Before you ask anyone for money or invest any of your own, you need to know whether you have a business idea with profit potential.

That process starts with clearly defining the specific, unmet need your product will address, and then sharing the idea with the right people. Regardless of how you do it, it’s going to require an investment of either of time or money, and often both.

The bill: anywhere from $0 to $100k

Where to Get the Cash

Self-fund

Many founders live cheap and stockpile anywhere from $10k to $50k, sometimes even more. Self-funding lets you maintain full control of your company, postpones asking other people for money, and keeps your expenses low with no loans and interest to pay.

Save cash and do it yourself

If you’re a programmer, and your project is digital, building it yourself will cost you time instead of money. Do you have the time to give? Also ask yourself who’s responsible for finding customers? Sales and marketing can be as much work as getting a product released, and that’s where a non-technical co-founder can come in handy.

Get a co-founder

Co-founders bring skills, time, and money to a startup, and they can help get you off the ground without outside financial investment. Keep in mind, they also share control and future profits. If you find a good partner who knows things and people you don’t, is willing to commit time to the idea, and has a similar endgame in mind, a co-founder might be a good fit.

Friends and family

Asking friends and family for money is outside most of our comfort zones. You may be surprised, however, at how quickly you can scrape together the money you need from a few enthusiastic people you already know. Friends and family already trust you, and they’re often more motivated by a desire to support you than to get their money back quickly.

Think bigger than your friends’ wallets. Regardless of whether your friends have the cash, ask if they know anyone else who might. You never know who has a rich aunt, a boss, or a “friend of a friend” who’ll be willing to pony up. If you ask enough people, you’ll likely be able to raise a sufficient “seed round” to get rolling.

Find an angel

Angels invest in startups in exchange for a piece of the ownership and the excitement. To find an angel, get involved in your local startup community and ask around. You may also want to check out online sources like AngelList and Gust.

Angels bring insight, relationships, and credibility to your startup, as well as their checkbook. They also bring their opinions on how you should spend their money. Evaluate potential investors holistically and choose wisely. They’ll be with you for a long time.

Download the rest of the guide

Interested in more tips and insight for startup founders? I offer a weekly email series — sign up for it here.