Being a first-time entrepreneur is a lot like being a teenager trying to open a credit card on their own for the first time. Regardless of how smart, trustworthy, and responsible you are, nobody wants to be the first to take you on. Just as many banks won’t even open a person’s application without a previous line of credit, first-time entrepreneurs will generally have a hard time convincing VC firms and angel investors to back them with no personal experience or track record.
Entrepreneurship is an industry almost completely built on pillars of reputation and connections. Connections bring you opportunity, and reputation allows you to capitalize on it. But what if you need funding for your first venture?
While you may not generate immediate attention from the world’s top VC firms and private investors, there is at least one person in your life that is interested in hearing your pitch. In fact, there are probably 5-10 people in this list between your family, friends, and colleagues.
Some refer to this as the “Friends, Family, and Fools” round of funding. This is the important stage in which most businesses will live or die. Tiny investments from your friends might not sound like much, but you’d be surprised at the amount of power in this stage. After all, for most people launching their first business, it may be impossible to find anyone other than friends and family to believe and invest in your product.
A Word on Bootstrapping
This is a buzzword in the startup and entrepreneurship communities right now. Bootstrapping is the wonderful method in which startup owners try to launch, grow, and maintain their business with personal finances and revenue generated by the company without giving away equity. Running a lean company and maintaining steady profits is much easier said than done, and it can be more difficult for first-timers to find success through bootstrapping than it is for them to find extensive funding.
This is where getting creative with your funding comes into play. Raising money with friends and family is a solid way to start bootstrapping your startup without giving up initial equity. For many entrepreneurs without much experience, getting assistance from friends and family can provide them with the starting resources they need to successfully bootstrap their company.
For experienced entrepreneurs, bootstrapping with their savings and revenue might come easy. But when it’s your first product, bootstrapping without some form of financial padding can spell disastrous.
Getting Your First Investments
Without previous product launches and a vast network of connections, finding your first investors can be quite daunting. No portfolio of success means that most people don’t have a reason to believe you. That is, of course, with the exception of people that already know you.
Regardless of the type, all investments are based on established trust. When you purchase a product, you trust that your investment will provide value to your life. If you give a loan out to someone, you usually trust that he will pay you back. By taking stake in a company, you trust that the value of the business will go up and your investment will grow.
While you may not have built any trust in the startup investment community yet, your friends and family trust you simply because they know you. These are the people you interact with at home, out at dinner, and in the workplace. Most of them have gotten the time to know you, and this forms the basis of any investment.
Look for potential investments from the obvious places: your immediate and distant family, your close and old friends, and everyone from the office. Simply reaching out and asking to grab coffee is a great way to talk about your proposition without creating a pressure-situation.
Offering your product or service (even if it’s not finished yet) in exchange for an early investment is a great way to generate funds without giving up equity in your startup. After all, most of your friends aren’t looking to take on a position as a stakeholder in your company. Many of your early investors will be making their decision based on their perception of you as a person. With that said, most friends and family are satisfied with a loan, promised deliverable, or even donation.
While $25–$100 may seem tiny, multiplying this across many people in your network adds up surprisingly quickly. In the end, it’s not really about the total amount of money you raise anyways–what’s important is what you do with the money.
Remember That Businesses Are People Too
Sometimes, companies can take on a somewhat robotic persona. It’s quite easy to forget that in the end, businesses are run by people. Maybe a front-end web development agency would be happy to build your site in exchange for your service. Maybe your first big investment will come from a local restaurant that really wants to implement your new software. The point is, it’s actually easier to find an investment when it’s mutually beneficial.
Finding an area where you create obvious value for a business is a great way for inexperienced entrepreneurs to woo their first investors. Regardless of the company’s size, people there likely care about the health of the business. When you come to a business with a product or service that can increase their efficiency and potential revenue, someone there is likely to listening.
Getting another business to see the value in your venture can sometimes be easier than convincing a single person of it. Most individuals will be focused primarily on how they think you and your product will perform in the world, and whether or not they will see a return on their investment. In contrast to this, people behind businesses are more apt to make an investment based on the potential value it brings to them as a company.
Unconventional Channels Lead to Conventional Success
Your first investment might come from your best friend’s parents, and your first logo may come in exchange for a few blog posts, but that’s okay. When it comes to getting your first project funded, thinking up creative ways to generate capital is a must until you can build a reputation and network.