One of the biggest questions entrepreneurs have is how to get funding for their venture. Fortunately there are many sources for venture dollars. Where to look for funding depends on what stage your company is at.
Early on you should either bootstrap or go to friends and family. Many companies start this way, and the goal with limited early funding is to stay lean and get something built as cheaply as possible. There is disagreement on whether bootstrapping is ultimately successful, and whether you should take angel money early on. Personally I believe it is crazy not to bootstrap, at least initially. Bootstrapping forces you to think very carefully about your business; and it is your chance to prove to yourself and potential investors that there is something worthwhile to invest further in and keep the ball rolling with the company.
The next stage of funding is usually angel money. The amount of angel money can vary widely, but is often within the $25K to $100K level. However, anything south of $1M is usually considered to be an angel level. To get an angel level of investment, you need to get plugged into your local angel network. In most high tech communities like Austin, there are dozens of organizations and hundreds of angel investors. In Austin, a good list to reference is on Austin Entrepreneur Network.
After an early seed round, if your company continues to do well, you may want to go for venture capital funding. As with angel, you should first reach out to local VCs. It’s best to do research on the venture firm and see if they typically make investments in your space, and target those first. Unlike angel, going for VC money opens up a wider aperture and you can look at VCs in other cities, as it’s harder to get angel money from someone living elsewhere.
Regardless of where and from whom you attempt to get funding, the most important thing in most investor’s eyes is where the introduction comes from. Cold calls to investors or throwing business plans over the wall will never get a warm reception. It takes a reference from a trusted source to get a meeting, and ultimately get an investment. In the case of VCs, they see hundreds of business plans per month, and there is no way they have time to look at all of them. Priority goes to known entrepreneurs and references.
Alternative funding sources are starting to emerge. Companies like stealth-mode Profounder promise to bring crowdsourcing to venture financing. Profounder is being started by the founder of the microfinance site Kiva.org, and counts Reid Hoffman, chairman of Linked-in, among its advisors. A crowdsourced model of investment is a brilliant idea that it’s surprising hasn’t been already done yet.
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