Where To Raise Your First Startup Capital
Raising money is one of the most difficult aspects of running a startup, and assuming you already know how to self-fund and bootstrap for as long as possible. You have to go to a complete stranger, and ask them to invest whole-heartedly in you, and your idea. Obviously this task gets a lot easier as your startup progresses, however, in the beginning your ability to pitch your idea to a complete stranger is quite an uphill ordeal.
Fortunately, you have a great resource for initial capital investment right when you’re beginning to start your company: your friends & family (and fools).
Friends & Family Are the Best First Capital
There’s the old cliche that friends and family are the first place to start for capital, and like many old cliches, this one is 100% correct. As you’re starting to develop your company, you’re going to be pitching to as many people as possible, and your friends and family are most likely to be the recipient of one too many pitches. Luckily, however, as you continue to pitch, you learn to refine it, and in one of those iterations, you may finally strike a chord with your first investor(s).
Early on, before you have a concrete product or even fully-fledged business plan, investors are investing in you. They’re investing in your ability to see your idea through to fruition. What better people to invest in you than those that have done their “due diligence” on you. Growing up, every honor roll and award is essentially like the VC poring through your resume to see if you’re fit for the job.
Now that we’ve echoed on the great reasons to raise money from friends, you have to understand the huge risk and complications that can result from taking money from family. Unlike institutional investors, your family does not have a $500 million war chest just lying around, and they probably have a lot riding on you and your startup.
Additionally, if you’re ever dealt with investors before, you know this better than anyone. But having “dumb money” on your term sheet is a horrible ordeal. You will constantly have them stopping in the office, calling you, emailing you, whining, complaining, etc. The easiest way to get rid of this nagging is to find more investors, investors that have more money and thus dilute your original friends & family down to a non-participatory role.
Anyone else, please share your early investing secrets in the comments.
