Part One of a Series on Funding for Entrepreneurs
“If you don’t build your dream, someone will hire you to help build theirs.” ~ Tony Gaskins
Future Entrepreneurs, have you ever thought of yourself that way? Every day that you’re working for some else, you are not working for yourself. You are not moving forward with your dream, your passion. Nor are you building wealth, but, that’s a topic for another day.
As an Entrepreneur, your dream doesn’t even have to start from scratch or with scratch. Scratch is another term for money. No one has an idea that can’t be improved upon. Therefore, you can take a great idea and a business plan, and use other people’s money to make your idea a reality. The funding options below (and in future posts) are in no particular order.
Option 1, as an Entrepreneur, to make your idea happen is to use crowdfunding. Crowdfunding is a process where you fund a project or idea by raising money from a large number of people who are each contributing a smaller amount of money then say, a venture capitalist. This is managed over the internet. Think of it as hundreds or thousands of small investors, each putting up a few hundred or a few thousand dollars, vs one venture capitalist putting up a few hundred thousand dollars to fund your idea.
In Crowdfunding, there are 3 functions: the person or persons who propose the idea or project; the person or groups who promote the idea; and the organization that brings people together and solicits money. Just two years ago, crowdfunding became a worldwide $5.1 billion industry! The main two types of crowdfunding:
- Rewards –where a product or service is pre-sold to help launch the company. The Entrepreneur incurs no debt and you’re not giving away equity or shares. You will often see these things on Facebook posts where the entrepreneur is advertising an item in “pre-sale” for $30 or $40 dollars each, so that when they have sold enough product, they can afford to move into the manufacturing and delivery phase. I saw one recently called “The Thing Charger” (http://www.thingcharger.com). Take a look and you will see that they are now up to more than $700,000 raised.
- Equity – the Entrepreneur gives up shares of his/her company in exchange for money pledged.
Option 2 is another kind of financing – using your 401(k)*. A 401(k) is a type of retirement savings account, which takes its name from subsection 401(k) of the IRS Code. With this option, there are both upfront and monthly fees. Opportunity Costs indicates that there is the potential for losing value initially. The Upside (because you always want to start with the positive) is that you pay yourself. But, you have to consider that you are leveraging your retirement.
In Part Two, we’ll discuss other funding options for Entrepreneurs, such as Home Equity Loan and getting a loan from the Small Business Association. And, Part Three will cover Seed Money, Cash and Traditional Banks.
*NOTE: if you are still employed at the company where you have your retirement account, often times, you cannot borrow against that. If you are no longer employed there, or if you have a personal IRA, then you may be able to borrow against that to obtain the funds to start your business.
In an earlier post, I asked you if you had thought about Entrepreneurship. Hopefully, you are getting more comfortable with the idea. Let me know if I can help you on this journey. If you don’t want to create a whole new business from scratch, then you might want to consider a franchise. I can help you find the right franchise business for you. You can contact me by email at email@example.com or by phone at (859) 866-3349. I can help you find the right funding option to help you become an Entrepreneur!