When to Seek Investment
All to often entrepreneurs spend too much time and money looking for funding for their new ideas. Add to that the fact that most also do it too soon and it's no wonder that very few businesses get funded at all. The first hurdle to get over is if and when to look for money.
'If' you should look for investment
First, ask yourself
if you should be looking for investment. Investors are not very interested if you are not already generating money. The few that might be will take a very significant percentage (probably around 40-50%). They are more interested in growing a business that has started sucessfully trading and has a few sales. Secondly, maybe the amount of money you need can be raised internally - why give away a percentage of your company if you could satisfy your needs with a short term loan? Maybe you can downgrade your car or extend your mortgage. If you are not prepared to invest part of your house's value in your business, then maybe you do not believe in the business enough, so do not be surprised if no investors want to invest either.
'When' you should look for investment
You need to understand the various stages a company goes through to appreciate the funding that typically accompanies each stage. First of all is the seed stage. This is where you are looking to raise anything up to say 50k, to create a product/service, prove the concept and get a few sales. This is typically called the 'friends and family' round (some say 'friends, famiy and fools') and is where you raise as much money yourself as possible (including your own). It is unlikely you will find an angel investor at this point - and any that you do will probably want 40-60% of your company. Getting outside investment at this stage is extremely difficult and likely to cost you a lot higher percentage than you should give up. The solution at this stage is to 'boot-strap' until you have generated the money yourself and achieved a few sales (maybe only 1 sale if it is a large item or large order).
What is 'bootstrapping'?
Bootstrapping is to start and maintain your business without outside help (investment). It means raising money whichever way you can to get your business up on to it's feet. Typically people will do this via a paid daytime job, working on their businesses in their spare time. The problem is most people stop doing once they have a product or a demo, whereas they should keep doing until they have made some sales and proven their business model to work.
Once you have achieved this goal, you will have a much better chance at finding investment. The first investment round will typically be from an Angel investor (who usually invest anything up to £500,000). Normally (depending on product) your first round would be up to, say, £150k. Sometimes angels invest as a group, so you may have 2, 3 or 4 investors paying anything from 10,000 to 50,000 each.
How to look for investment
There are many avenues for finding these potential investors, which are covered in the following article,
how to find investors.
