We have romanticised the idea that some angel investor will give you lots of money to start a business. We prefer this because it seems easy, and mitigates our risk.
Let’s manage expectations. The majority of start-ups are funded predominantly by three sources:
- Entrepreneurs’ money. That’s right, your own hard cash. Not just hours and sweat equity, but actual money. Plan for this before you leave the job that pays a comfortable salary.
- Friends and Family money. If you cannot convince your loaded uncle your business is a good idea, chances are an investor will not be interested. This is a great acid test for your business. See if the people you trust are willing to support you, not with words, but with money.
- Bootstrapping. This is when you start the business small and let it pay for itself from profit. This is a long road. It takes time. It is also healthy. It ensures the business grows at a pace that the cash flow can manage. It also shows that you have customers that love your product.
Once you have these three running, it will be much easier to raise capital from that angel you were hoping for. They want to know that you have skin in the game. They want to see that you have customers and a viable business, not just a great idea. They want to know that you are responsible and work well with money.
Angel investors and Venture Capitalists rarely fund salaries. They fund assets. They don’t want to fund your comfort, they want to fund your growth. Often, the two are mutually exclusive. Pitch accordingly.