How do you get the money to start a business?!
Particularly when it's a cash-hungry business...
It’s cheaper and easier to start many businesses today than ever before.
For some however, it’s as expensive as ever because they’re asset-heavy. By that I mean they need equipment in order to do what they do. Think manufacturing plants, airplanes (though Richard Branson notoriously figured this one out), and - in my case - laundromats.
For others, you might have better access to the people, tools, and intel than ever before, but that doesn’t mean that it doesn’t cost money to have access to them. For example (in my case), formulators and chemists for a skincare brand.
So then the question becomes… if you want to start one of these types of businesses, do you a) give up, b) save up all your money and then blow your life savings and hope it works out, or c) come up with another plan?
I vote option C.
In case we haven’t met - hi, I’m Sam, and I’m building a portfolio of businesses. This Substack is where I document the process of building and share the behind-the-scenes on my experiments.
In no particular order, here’s the list of options I’ve come up with for alternate funding sources that aren’t “blow my life savings” (investigation in progress)…
Friends and family: hit up F&F for modest amounts of money and in exchange give them a higher interest rate than they’d get with a bank, or equity in the business. IMHO this can potentially be awkward or feel like they’re “doing you a favor”. If the business fails, will your relationship survive? On the other hand, there’s something very motivating about having other people’s money on the line.
Business grants: there are dozens of small business / startup grants out there for all kinds of businesses. The caveat is that they aren’t usually for significant amounts of cash. I’ve made a list of all the small business and startup grants I found in my research (click on the link to get it free).
Awards: similarly, there are many, many awards out there for which the prize isn’t just glory and a certificate, but also cash. Again, many aren’t massive amounts of money (but it all adds up). I made another list of all the small business and startup awards I found. (Please note, these are my personal lists, so may not be exhaustive for your circumstances).
Bank loans: boring but they work. The challenge here of course is that you’re on the line for the debt. So if the business fails in most cases you’ll need to find a way to pay back the loan personally. Also interest rates can range from reasonable to loan shark depending upon your personal credit history. Scary stuff.
Seller financing: this is way more creative. Essentially the way this works is that when you buy the business, you pay for it with the future earnings of that business. The seller (instead of a bank) acts as your financeer. You agree to the terms of the loan (ie. duration and interest rate). This works when you are buying a healthy business from someone who doesn’t need all the cash upfront (e.g. a retiree) - in fact, getting the cash over time can be much more tax effective for them, and easier for you. BUT you have to find the right business and seller, so is super situation-dependent.
City/state-based small business funds: most state departments or city level government agencies have some variation on this - they’re funds designed to distribute support to small businesses, either startups or small businesses critical to the infrastructure of the city (e.g. laundromats!). Sometimes they come in the form of tax credits (helpful, but not helpful when you have equipment to buy or manufacturers to pay), but sometimes they’re cash loans at low interest rates or similar. I’m currently exploring a NYC version of this called the Small Business Opportunity Fund - stay tuned.
Crowd funding: remember when Kickstarter was all the rage? This is still a viable option but now there are lots of other sources.
TikTok creator fund: in short: get more than 10k, followers, create engaging videos of more than 1 minute, get paid. Easy? No. Doable? You bet your butt it is. Go forth and hustle (she says with 2,500ish followers…)
Venture capital: this only works for certain businesses, and my gut says this particular deck is not stacked in my favor. My personal vote goes to hustling like crazy, waiting til they approach me, and then deciding from there if the VC and the moment is right. What I will say is that my VC AND founder friends universally agree that there is no sense taking money from the wrong VC. Make sure they bring more to the table than cash.
Angel investors: somewhere between the friends and family and the VC. As best I can tell at this early juncture, the right angel opens doors and provides invaluable intel, not just cash. Sometimes, angels are straight up angels. Other times they may come in the form of advisors you bring in early on who become angels. In any case, these people tend to bring slightly bigger checks than F&F (but not VC level money).
Partner equity: this isn’t cash, BUT maybe it will get you to where you need to be? The idea here is that you work with partners (ie. suppliers, manufacturers, agencies, designers, etc.) to provide sweat equity - that is, they provide their services for free in exchange for equity in your business. I have this particular agreement in place with the dermatologist I work with on my skincare venture.
If you’ve got other ideas, please… hit me up! I suspect that my current ventures won’t be funded by just one source.
If you liked this newsletter / found it helpful, I write weekly on these things. It’s the newsletter I wish I could read.
Til next week,
Sam