Frequently Asked Questions > Starting a Web Company > How do I raise money for my startup?
First of all, I am hardly an expert on this subject but I can offer you some advice based on my limited experience. I’ve only gone through this once with a web company (we closed a $1.2 million seed round last August with two venture firms and friends/family investors). That said, I’m not a total newbie. I raised money for the nonprofit I co-founded and raised capital for several real estate projects in my former life. Hopefully you’ll find some of these tips useful. There are no magic bullets. I feel very fortunate to have raised the money we did and wish you well along the same road!
- Form an advisory board: this is the first and most important step (see question below for more info on this). If you haven’t already, find people who support your idea and believe in your ability to execute it. Honestly, if you can’t convince some relatively heavy hitters to spend 1-2 hours with you a month, you’re going to have a hard time raising any money at all. Start thinking about this now.
- Get to know other entrepreneurs who have been funded: I hear about a lot of business plans from going to various NY tech events, and the ones I think are strong, I send right over to my investors. It’s good for me to help them, and it’s great for other entrepreneurs if I can help them get funded. A couple things on this though: people will not make an intro unless they think it’s a great investment for their investors. It has nothing to do with how good of friends we are or how many times you ask me. I’ve referred my investors to companies I’ve barely met and not made intros to people I think the world of. I’m conscious of our investors’ time and I want them to know if I send them someone, I’ve generally vetted the person and the idea.
- Get a small business loan: I was able to raise a small business loan of $25,000 (8% interest paid every month) once my alpha site was live. It was a somewhat challenging three month process but I had the best Small Business Advisor ever (search sba.gov for the small business center in your town and go there) who helped a ton. I presented them a business plan that seemed sound enough to lend against. I think it helped that 1) I had some student loans I’d paid back / paid on time, 2) my “net worth” including retirement accounts was less than $100K but more than $50K (they want a personal guarantee so you have to have some money to cover the loan but not so much that they deem you too rich to need it). Ah, government.
- Raise from people you know: I know this is a controversial one, but while it was emotionally tough, having my dearest friends and family behind Loosecubes (the people who know me best of all) financially sent a very strong signal to the professional investor community. I am so appreciative of all my friends who took this leap with me before anyone but the US government had signed on. They made it possible for me to raise money from institutions without needing to. And that always leads to better terms for founders.
- Get a minimum viable product out: This is even more important for non-technical founders. Prove you've got what it takes to get a product developed.
- Don't overthink it: If you're one of the lucky ones who've gotten a couple warm intros and turned them into term sheets, weigh 1) who you want to work with 2) likelihood of participation in an A round 3) terms of the deal and pull the trigger. Build some competition around your deal by not making promises to anyone until the deal is signed. In a tie, most favorable deal terms win. Do it.
Last updated on January 30, 2011 by CampbellM