Evan Carmichael breaks down four funding sources: friends and family up to $50,000, angel investors at $50,000-$500,000, venture capital from $500,000 up, and government grants. His main advice: avoid raising money early. Bootstrapping by selling to customers first makes later fundraising cheaper and easier.
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How to find investors for your business. So I got a great question from one of my YouTube viewers, love you guys, Summer, who wrote in to say, thank you very much for your video, that was awesome. I am short in budget to create my online store and other things, and for that I have a question for you to help. How can I find investors to invest in my business? So Summer, this is a great question and one that a lot of entrepreneurs face as you're trying to launch a business. How do I get the money that that I need to launch this thing? I'm gonna give you some options and then give my own little bit of advice at the end. So your first option is friends and family. Okay, number one is friends and family. And this is called love money in the industry where this is really, if you need up to around $50,000, $50,000 or less, you're looking at friends and family and you're finding people in your network who like what you're doing, like you, Sometimes it's guilt money, sometimes it's, you know, you did this favor for them so can they invest in your business. Sometimes it's, you know, you helped them move their furniture, whatever it is. And often it's not the people who are most directly connected to you. It's not your immediate friends and family, it's this bigger circle around it, right? It's the people who maybe you went to high school with, or the people who you are part of a committee with. Or on a sports team with. It's that wider net, that's where often you find people who are interested in doing it. And it's also called golf course preferred money, where the idea is you go and you take your best friends or take these people out to a golf course and you have a game of golf, and then at the end you go and you chat them up about your idea and see if they're going to invest in your company. So that's up to $50,000. I don't know how much you need, you didn't say in your email, but Above $50,000, if you're like in the $50,000 to $500,000 range, you're looking at angel investors. And angel investors are wealthy people who want to invest in the companies. Some of them are professional investors where that's their business as they go out and they look for opportunities to invest in companies. Most of them are just wealthy professionals who don't like their jobs and they want to invest as a fun thing to do. A lot of them are called DDI, which is doctors or dentists with disposable income. And a lot of dentists, as my dentist was saying to me, you know, he doesn't really get a lot of enjoyment anymore out of his business, but he's too scared to go and launch a business himself. So he, he lives vicariously through the investments that he makes and it gives him something to talk about to his friends. So that's $50,000 to half a million dollars. And they're looking to make around 30% return on their investment per year. And be able to exit within 8 years. That's your typical angel investor. The thing to think about there is, do you want them to be just money, or do you want someone who's actually going to contribute to your company as well? Ideally, they're bringing connections and resources and not just giving you dollars. The next step up is to look at venture capital. Venture capital really starts around the half a million dollar range and goes up to millions and millions depending on how much you need. VCs though aren't really startup friendly. They want to see that you've already built something. They want to see momentum. They want to see traction. They want to see how you're going to scale this company really quickly, right? They want to see 30% per year return on their investment and be out in 5 years. So they want to see, is somebody going to buy you or can we take this company public? And so it only lends itself towards really high-growth scalable industries like software and technology and not some of the more traditional industries. So that's your range. On top of that you have government Government is really slow typically. Sometimes they're grants though, and so you don't have to pay interest on it. But beware, it just takes a long time often to apply to the government. And the other thing to think with government is they have specific requirements. So some of the loans are for startup businesses, some of them are for women businesses, some of them are for native businesses, some of them are for whatever it is, specific industries, sectors. You have to be really targeted over what you're going for. That being said, with all of that being said, and I'm the former VC, I'm the former guy who was helping raise capital for entrepreneurs, I really don't believe that you should be out there raising money to start a business. Couple reasons. One, it's the riskiest time, and so you're going to give up a huge chunk of your business, or if you take on a loan, it's going to be at such an expensive rate that it's not going to be affordable to you. If you go to the bank, most banks are not startup friendly. They want to see you have 3 years at least in business. Otherwise you need a personal guarantee. But if you go to a lender and you have a startup business pitch, they're going to charge you such a high rate of interest that it's not going to make sense for you. If you go to equity investors like friends and family or angel investors, it's so new that they're going to take a huge chunk of your company. And if you're left with only half of your your business, are you still going to be motivated to want to keep going? Because as you grow, you'll need to bring on more money. At the same time, and this underlies everything, you're spending your time raising money instead of being out there growing your business. Raising money is a full-time job. It takes so much energy and life out of you to go to these meetings and prepare your pitch decks and talk about what you're doing, where you could be spending that time talking to customers and getting money from your clients. So what I would encourage entrepreneurs to do encourage you to do is start small. Start small, start around customers, start around things that they want, start making money from your customers, and when you're ready to expand, when you've shown that it works and you're ready to expand, that's when you can go for money. And it's much easier, much safer, you have lower amounts of equity that you have to give up, or you're going to get a better interest rate, because the easiest kind of money to raise is expansion capital. The hardest kind of money to raise is is startup money. And so maybe not the answer that you want to hear. If you are starting an online store, really, I would say it's you to start this up, right? And maybe you involve a friend or family member who can help you design the website. But if you go out and try to get money for this, it's going to chew up a lot of your time and you're not going to get a great return on it. You're going to be hamstrung. And so get out there, hustle, stop thinking about the money you don't have, and instead Instead, focus on what you do have and how can you turn something amazing from it. Believe. For those of you watching, you like the video, you want to see more like this, subscribe to the channel. I'll keep putting them out there for you. Thank you so much. I'll see you soon.
