“Money, It’s a Gas.” – Part 1
“Money, it’s a gas. Grab that cash with both hands.”
– Money, Pink Floyd – Dark Side of the Moon
Wouldn’t every entrepreneur with an inspired idea and every small business owner with a current opportunity love to take this advice and grab the cash? Unfortunately, many aren’t clear about the funding options available to them during their various stages of business development and, therefore, often reach for something they’re either not ready for or are ineligible to receive.
I frequently meet and consult with people who have great ideas for a community-based small businesses. Some already have well developed plans for launching and a great chance of success. But they need some start-up capital, so they’re asking about angel investors or grant money.
What they often don’t know is:
- Government grants for funding private enterprise generally don’t exist; and
- Typical equity investors, i.e. angels or venture capitalists, are interested only in highly scalable, growth-oriented ventures because they represent the highest return on investment potential.
Therefore, lifestyle businesses are reliant on fundraising from friends and family, crowdfunding, traditional bank loans, and community-based microenterprise lending programs. The most obvious, but often overlooked, financing source is sales. But that’s a subject for another post.
For now, let’s focus on external funding sources available at various stages in the business life cycle. The following graphs, used with permission from Han Peng, Manager of Entrepreneurial Programs at TechTown Detroit in Michigan, help illustrate how profitability, time and stage impact your financing options. The first is general and works across geographic boundaries, while the second adds a layer to illustrate some specific Michigan program examples. I’m confident the principles can be applied to similar programs across state lines.
Graph 1.0
Printed with permission from Han Peng, TechTown Detroit
Graph 2.0
Printed with permission from Han Peng, TechTown Detroit
These graphs don’t take industry, location, ownership designation, or other individual characteristics of the business into account, but it’s important to note those factors can also have a great effect on an entrepreneur’s or small business owner’s eligibility for funding, as can the application itself. Knowing how and when to prepare and present your ask is critical to a successful capital raise campaign at all levels, from friends and family loans to venture capital investments. Stay tuned for a future post with those helpful tips.