Funding 101: What's Best for Your Business?
NEW YORK ( MainStreet) Getting a business off the ground is never easy, but often one of the first hurdles securing funding is the most difficult. Knowing which route to take can seem daunting. Should you opt for angel investors? Crowdfunding? What about money from mom and dad? There's no one-size-fits-all answer because every startup is different. We checked in with the experts to find out which route is best for your business.
Friends and family:
"A lot of our clients want their children to succeed, and it's just par for the course that they're going to help their kids get a business off the ground when the need arises," says Deb Doran, managing director at CTC Consulting and Harris myCFO in Seattle. "But when the children take that money, they have to communicate exactly what they want out of the arrangement."
Every family member and every friend will have different expectations when they invest in your business, and it's up to you to tell them what you want. Is this a loan? Is this a gift? Do you want your friend or family member to be a partner in the business?
"You're going to be sitting around the Thanksgiving dinner table with these people, and if you aren't clear about what everyone wants from the situation up front there's going to be tension," Doran explains.
For example, if your father wants to invest in your business, he may assume that when he does, he will become a full partner and will expect to be treated as your "right hand man," she says.
"You may need to step in and tell your family that you want to do this on your own, that you are treating them as you would any other investor," she says. "No matter what, you don't just want a handshake agreement. You need all the formalities in place."
With that said, don't take those long-term family and friend relationships for granted they can be the reason your company succeeds or fails, says Raad Mobrem, CEO of tech startup Lettuce.
"The people you know and the people who know you are important," Mobrem says. "They are more interested in your vision and who you are than in making money, and that is an incredible advantage to have."
Crowdfunding can be a great way to validate your business model, explains Eugene Borukhovich, a serial entrepreneur and founder of Q!, a social search app.
"If you can get thousands of people to give $20 to your business and validate what you're doing, then that may be what gets you to your goal, or it may mean that your business will be taken seriously enough to attract angel investors," Borukhovich says. "If your crowdfunding takes off, it showcases there is market viability and you are de-risking the next level of investment."