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A Realistic Funding Plan

funding ideaFunding, of course, is one of the larger challenges when starting a company. In most cases, going for venture capital as your very first funding source is not practical, and not a particularly good idea, because:

  • Unless you have a strong track record in starting companies, and a strong team, you’re not likely to be angel of venture-capital “fundable” without having made significant headway in your product development (to reduce technical risk) and revenue (to reduce market risk).
  • The earlier you go for investor funding, the more of your company you’ll have to sell to get the funds you need.

If you will need multiple-millions of dollars to grow your business, then venture capital may be your only option. But you’ll have a much higher probability of getting those millions if you’re company is already started, your service or product is at least partially developed, and your company has started to generate revenue.

Fortunately, there are other financing options you can leverage to get started, especially if you in the early Idea stage.  Those are described in more detail in the “How to Fund a Startup Without Investors” section.

A preview – there are sources available to you before you have a product.  Those include:

  • Keep your day job and work on your startup on the side
  • Personal savings and credit cards
  • If you have a working spouse – live on your spouse’s income
  • Friends and family (loans and/or investments)
  • Crowdfunding – traditional
  • Crowdfunding – for equity
  • A seed fund or an accelerators with a fund
  • Organic growth (live on revenue)
  • Do contracting work to get early revenue
  • Government grants (SBIR and STTR programs)

Once your company has at least some track record, venture capital becomes a more practical option. Eventually, even venture capital may not be sufficient to obtain large amounts of funding, at which point acquisition and initial public offering (IPO) are the late- stage options.

Suggested Reading:

Paul Graham: How to Fund a Startup