Funding related questions are by far the most common ones I get asked by new start-ups. I say 'new' because they are still asking or still believing there is easy funding out there. Looking for funding is not a straightforward process. You will need to learn how money moves between people and what influences and controls this.
You wouldn't believe how many people assume there are magic pots of money for start-ups. The reality is the real pots of money are guarded by gatekeepers, fund managers and investors – a dragon so to speak. You'll have to convince this person (and justifiably so) to hand over their hard earned cash. Over time you'll learn technique and the paths of least resistance but it takes practice, patience and resilience.
You should always remember people invest in people not business. How many times have you heard Duncan Ballantine on Dragons Den say "ya-alright, pal? I nor like yar business but I like you-oo". This is because experienced entrepreneurs understand that businesses and ideas change, morph and evolve. The 'right' person will make sure this happens in the right way and ultimately this is what really matters.
You will always (unless you are really lucky) meet people who don't understand you or your idea. Some of these people you might respect, in which case take note of what they say. Equally you will come across people who you share no similarities with and quite possible dislike. In this case I always ask myself 'am I going to let this person decide on my future?' the answer is NO! Lots of potentially brilliant entrepreneurs fail because they can't handle rejection. Personally, I like nothing better than being told you can't do something by someone you absolutely despise. We call this belly fire. Experienced entrepreneurs can spot this quality a mile off so get motivated, get angry, get obsessed or whatever... but never give up.
Of course eating porridge in the morning will only get you so far. It's equally important that you inspire confidence in your investors and demonstrate expertise in your field. Do your homework and impress the pants off them. Even when you aren't actively seeking investment there is no harm in getting out there and building your network and making a name for yourself. My first major investment came from Coors brewery who offered me £80,000 to help lease a hotel when I was 24. This might sound mad but Coors had been my supplier at my previous 2 premises. I made sure they noticed the work I had done and kept in close contact with them. When the time came they were happy to help. (This deal went South when I stupidly presented my business plans to the hotel owners who subsequently pulled out of the deal and implemented my proposal themselves. This is what experience does for you.)
'It's not personal, it's just business'
A classic saying and something that has stuck with me. At the time of the deal I took it very personally but now I can see it was 'just business'. When there is money at stake it's always 'just business' –and quite rightly so. Whenever you approach any deal, investment or business proposition don't make it personal. Personal means loose, unprotected, grey area, room for error, getting screwed over and resentment. Be absolutely clear about what you are offering (or taking) right from the outset and make sure all parties understand too. There's nothing wrong with having a personal service or being a people person in business but when money is at stake it's all business.
This is one of the reasons why I like to keep family and friends separate to my business life, the most obvious place to seek investment. They'll probably believe in you unconditionally – and this is the problem. When you borrow money from a bank, they will determine interest based on risk. It's a calculated decision. With family, this calculation is biased. If you are going to borrow money from family consider what is at stake first. Seek outside opinion and put in place safeguard measures. No matter how good your idea is, it'll never be worth a friendship.
Besides why would you choose the easiest (but most risky option) when there are so many other options to choose from?! Ok, so they might be hard to get and require you to fight, grovel and beg but most of them have awesome secondary benefits. Gain an industry investor and you have a mentor, win a grant and its free money or learn to start lean and you become more entrepreneurial.
So where do we start? Well the first step is to determine what we are actually looking for.
The term bootstrapping means to reduce your start-up costs. Is it necessary to the start-up plan? No? Then get rid of it. We only need the absolute essentials. Next, are you sure this is the best price? Shop around, negotiate hard, buy second hand or lease. Once you're absolutely certain it can't be bought nor done any cheaper you have reached stage 2 – categorise.
Decide what sort of costs you have. There are different pots of money for different sorts of costs. For example most Welsh councils offer part-fund grant schemes for equipment, ICT and websites. There are government grant schemes for employing young people. Online tools like the business wales 'funding finder' puts every pot of public money at your fingertips. Perhaps you need money for manufacturing materials? In which case look to your suppliers. If you need money for expansion, your own wages or major costs then your need to look at major investors. What sort of investors are there? What are they investing in? Check out funding circle for loads of clues.
Most potential investors would assume all the other options had been exhausted first.
Next think about when you need the money. You'll be surprised how flexible this can be. My cash flow is my first place to look when planning my funding strategy. Remember, you only need money when it's due. This is what your cash flow is designed to do. The obvious way to ease your cash flow is to get sales in early – really early. What happens if you get sales in before you actually incur any costs? Crowdfunding is based on this concept.
Armed with this information you are now in a position to start tackling the problem at hand. It's probably not as big a deal as you think it is. Besides, if you know what you're talking about and you've got enough belly fire you will find a way somehow and that makes you the 'right' person.
Blog post by Dewi Gray, Business Start-up Manager