Most early-stage funding comes from founders themselves, followed by friends and family. Steven breaks down alternative sources: crowdsourcing platforms like Kickstarter, state and federal programs, and angel investors who are often successful entrepreneurs willing to mentor. Direct outreach through your network beats formal investor groups.
The next two questions, uh, Dazani and Babulo are talking about how basically how do you find investors? What's the process of finding an investor? What direction you take? You're trying to get capital. How do you go and actually find those investors for your business?
Yeah, I think, um, probably the, the most difficult time is when you start up. So, you know, you're bootstrapping a business. I think once you get to sort of critical mass, you've got revenues of $1 million, $2, $3, $4, $5 million, there's a whole kind of network of growth capital venture capitalists out there. But in reality, you know, I looked at some data the other day, about 80 to 90% of the startups are funded through people like us, starting businesses yourselves. So that's your own life savings, remortgaging your home, your credit card, maybe getting a loan from the bank, stuff like that. And then the other factor is all the friends and family stuff. Although you don't want to take the friends and family money, you've got to agree some ground rules with this stuff because you don't want to go on vacation with them and every night it's like an investment meeting. You've got to make sure if you do friends and family, you have delineation between between the investment and your relationship. And, you know, full disclosure, you've got to tell them you can make money, you might get 10 times, or, you know, I work 80 hours a week and it doesn't work out. They've got to understand that. But then the other things I'd say is, that's the obvious one, so yourself, friends, and family. Then there's a whole world out there of crowdsourcing, and there's the Indiegogos, the Kickstarters, all these sort of guys. Out there as well in terms of crowdsourcing. I saw predictions saying the crowdsourcing market would actually exceed in terms of the capital deployed, I think it's by 2017, the VC marketplace. So we're seeing that whole impact of digital and social around crowdsourcing is a great way to go. So the obvious places as well, you know, let's start, if you're up in Massachusetts or you're out in Kansas, you could go down to your local either state or even go on the federal websites. There's loads of ways to get help around and find capital. If you're in a minority group, there's specific things done for minority agencies, Department of Commerce. There's loads of stuff out in New York, in New York State, I think NYSTAR, where they connect you with a network of entrepreneurs. There's a whole load of range of angel investors. And the other thing I'd say, Evan, is just to sort of throw away, All the angel investors I know are regular guys. They've done very well. They've been very successful. They're very approachable. So one of the kind of things in our heads and voices to prevent us being successful is saying, I couldn't pick up the phone to someone or I couldn't email someone. But you never know, you know, if there's someone that you really respect who's created a business in your industry with a lot of domain experience, I'd say try and reach out to them because they could be an amazing angel investor. They might look at you at the age of 27, 28 and say, "I really admire that guy. He's got a great story, disruptive innovator, and I'm not only angel investor, I could be a mentor in that business." I think there's a lot of ways around there to find the investment beyond friends and family and yourself and all those traditional things. Go digital, go crowdsourcing, but also just kind of use your common sense, have no fear, and be prepared to pick up the phone to people. But to Evan's point, the more expansive you go in terms of your search for capital, the more time it takes, and that's a distraction from running the business.
For clarification, for those of you guys watching, a lot of the crowdsourcing is a fantastic way to raise money, but you're often and usually not giving up a piece of your company. Right? If you go to Kickstarter, it's more like marketing, right? You're— you want to pitch this new product that you want to launch and you need $1 million to do it or $10,000 to do it. You're pre-selling and you're giving them bonuses, but you don't lose a chunk of your company. There are other crowdsourcing options where you are giving up— you're looking for angels basically, but the majority of it is not actually giving up an equity position in your business. So it's definitely something worth looking at because if you don't have to give up equity, It saves you an insane amount of money down the road. In terms of finding investors, I think to Steven's point, most of the angel investors are regular guys and guys and girls, ladies, and most of them don't go to angel investment meetings. Most of them are not part of an angel investment group. Most of them find their deals through their connections, through their networks. And so I would want to be telling my story to people who are connected into those networks. Great places to start with are accountants and lawyers because they deal with business people on an ongoing basis. It's their job to be connected to a bunch of these guys, so if they like your story, they could probably introduce you to somebody who could probably help you out, or at least have a conversation with you.
