What Small Business Owners Need to Know About Attracting Funding

Article Contributed by Bill Grodnik

With all signs pointing to an economic recovery, many small businesses are hoping now is the time to attract new funding. Before looking towards external sources of funding, there are things that small business owners need to keep in mind.

Dare to be different

Starting out, it’s vital to choose to operate a business where you already know something about the industry, or you have experience having worked in the field. Nobody wants to invest in a business where you’re reinventing the wheel, so use the knowledge to innovate something different in your field before you forge ahead.

Bootstrap like there’s no tomorrow

With no debt and no investors, you’re free to take your company in whatever direction you see fit. Rule #1 for the small business owner should be to self-fund for as long as is humanly possible – then look to external sources for funding.

Be more attractive

The #1 most attractive trait? It’s not being a blonde or driving a Maserati – it is being profitable! If you’re not there yet, have a clear, well-thought-out plan in place that shows your company’s path to profitability. This will enable you to at least negotiate some of the terms of third party investments.

Show your growth

For most businesses, funding in the early stages of a company’s launch is incredibly difficult. As the business owner, your #1 priority should be growing your business, in terms of customers and infrastructure. The best way to do this is to focus all of your energies on your core function and outsource what you can – the cloud offers ample opportunity to save time, effort and money. Even early stage companies that show solid growth will be attractive to investors.

The impetus behind increments

The first step is to decide how much money you need. And no, “a lot” doesn’t count! When you’re talking to potential to investors, they’re going to ask you the size of the increments you’ll be offering. (i.e. $1 million raised in $100,000 increments.) Pick the largest increment size you think you can get investors to match. You can always split and quarter your increments, but some investors will take “one” no matter the size, and the fewer investors you have, the more control you’ll have over your own business.

VCs can be costly

My best advice is to avoid VC funding in your company’s early stages. When there is little you can offer them in terms of value, many VCs will “offer” to take a controlling stake in your business in exchange for the funds you seek. If you take them up on their offer, you will likely end up with a group of “bosses” that tell you what to do with your business to ensure a quick return on their investment. Once you’ve built a team and an infrastructure, and you’re profitable – that is the right time to go after VC funding.

Consider other options

Many times there are alternatives to VC funding including local angel groups, private investors and – surprise! – friends and family. In fact, the easiest money to raise is from friends and family – friends will follow other friends and, if you’re willing to let your family invest in your business, most will consider the investment sound. Try to evaluate what your venture realistically needs to succeed and first look for funding and strategic support close around you – you may be surprised at the interest and advise you’ll find!

About the Author

Bill Grodnik is CEO of Davinci Virtual (http://www.davincivirtual.com), the leader in smart offices. Davinci changes the way people work by empowering businesses with savvy, live receptionist services and sexy virtual office space. To complete your business identity, Davinci can provide you with professional business addresses in over 800 prime locations around the globe offering mail forwarding, lobby and directory listings, access to over 2,500 meeting spaces including fully equipped conference rooms and day offices, administrative services, business support centers, resident agent services and more. Davinci Virtual ranked No. 141 on the 2010 Inc. Magazine’s 29th annual Inc. 500 ranking of the fastest growing privately held companies in the country.