It’s an unwavering reality—entrepreneurs need money. The best laid business plan won’t ever come to fruition without financial backing behind it. So today we’re talking dollars and cents.
There are myriad ways to fund your business and every entrepreneur’s journey is different. Through the experiences of three entrepreneurs, we’ll look at the main types of startup funding—venture capital, angel investment, and self-funding. Career Contessa discusses what worked for them, how they got the funds they needed, and how these savvy entrepreneurs manage their business finances for future growth.
Venture capital (VC) is a type of equity financing for businesses that don’t seek financial investment from traditional sources, such as banks or public markets. Venture capital tends to be allotted to young, high-growth companies, with investments made in exchange for shares and an active role in the company.
Darby Smart, an online marketplace of do-it-yourself projects, was founded in 2013 by Nicole Shariat-Farb. The site originally launched with 10 designers; today, Darby Smart’s designers number in the thousands. Given the company’s fast-paced growth, Nicole pursued VC funding. She raised $6.3 million in VC funding in the first round.
For investors, venture capital is seen as a high-risk investment with potentially high rewards. VC investors want to see a strong foundation, a great team, a viable business model, and a data-driven approach to growing a business. For Nicole, that meant a deep understanding of the $300 billion craft market, a co-founder who was an engineer and could help achieve her vision, and a disruptive business model that changed the way the craft industry performed.
For investors, venture capital is seen as a high-risk investment with potentially high rewards. VC investors want to see a strong foundation, a great team, a viable business model, and a data-driven approach to growing a business.
With VC money, you have access to advisors, funds, and, of course, capital that can take your company to higher levels of growth more quickly. But these are active investments—investors usually want to be a board member or have a strong say in the company. While this can be extremely beneficial, it can also cause conflict if there are differing opinions. And, at the end of the day, you give up a portion of creative control over your company.
Getting outside funding for your business venture is tough. You not only have to create a viable business model, but you have to prove that it’s viable to outside investors. These are Nicole’s top tips for female business owners pursuing VC funding:
- “As a woman, you uniquely understand the mindset of women. And women = spending power.”
- “Sometimes you’ll feel alone in a male-dominated world—you’re not alone, you’re unique.”
- “Don’t take money from someone who tells you he needs to “ask his wife what she thinks of your business” unless his wife happens to be a woman you would want to invest. If that’s the case, why are you talking to him anyway? Talk to her.”
“You should build the business you believe in,” Shariat says. “If you’ve been thoughtful about your revenue direction—and you’re raising money because you think that’s the right way to build this business—then don’t change because an investor tells you to. Building a business is one of the hardest things I’ve ever done. To succeed at it, you need to believe in what you’re doing.”
Not all businesses go for VC funding. Angel investors, who are often family members or friends, are investors who use their own money to provide funds to small businesses and startups.
Jen Lee Koss is the co-founder of BRIKA, an unique online shopping destination for beautiful modern crafts. BRIKA was in its infancy stage when Jen started reaching out to angel investors. Utilizing her network first, Jen and her partner started reaching out to pitch their model.
Where raising VC often involves pursuing large investments, actively-involved investors, and a formalized process, angel investors are typically more lax and don’t have as many constraints as venture capitalists. They tend to invest smaller amounts of money, but without the governance or involvement that VC investments come with, so there is less oversight. You won’t get the same of level involvement as VC investors offer, but you will have more creative control.
You won’t get the same of level involvement [with angel investment] as VC investors offer, but you will have more creative control.
“Angel investments are largely about investment in you, personally,” Jen says. “One angel may introduce you to another, but it really is that value of vouching for you that will get that other person over the line. In speaking with various individuals, I was looking for those that really believed strongly in what we were trying to accomplish.”
Jen and her partner raised funds from angel investors as their capital needs evolved over time. Focusing on staying lean, Jen said: “We’ve never been more creative or more scrappy.” BRIKA’s founders are not only focused on strict budgeting, but making sure that every aspect of their business is aligned.
“Budgeting is undoubtedly critical,” she continued. “We sit down frequently to mirror our strategic goals with actual financial projections so we can constantly understand the amount of investment we believe will drive our business going forward.”
Here are Jen’s tips for getting angel investments and managing future growth:
- “Accept rejection: I’ve never heard so many ‘no’s in my life! But the best possible thing to do is to take those ‘no’s, figure out why they’re saying no, and craft your pitch or approach to find more ‘yeses’.”
- “Do your research: It’s all about your audience. Save yourself time and energy by going after individuals who are clearly investors in your space or niche.”
- “Get your comfy shoes on: Fundraising is a never-ending process, so be in it for the long haul—always be raising!”
Venture capital and angel investments aren’t the right choice for every business and every entrepreneur. Some choose to start small. Others don’t want to relinquish creative control, or may not have access to angel investors or venture capitalists. This is where self-funding comes in.
Others don’t want to relinquish creative control, or may not have access to angel investors or venture capitalists. This is where self-funding comes in.
Sarah Boyd, founder of public relations and events agency, Simply Inc.; style-networking service, Simply Stylist; and co-founder of the International Style Institute, started small. With a computer, web hosting package, and a developer, she put her “selling hat” on and got to work.
A self-described “dot connector,” Sarah utilized her fashion PR background to launch her boutique agency, focusing on connecting people trying to make their way in the fashion industry with leading fashion and beauty experts. Today, that idea has expanded to include Simply Stylist and the International Style Institute, an in-depth stylist training course with celebrity stylist, Anita Patrickson.
Simply Inc. and the Style Institute grew slowly. Sarah stayed at her job and worked nights and weekends on Simply Stylist to start. She took on consulting clients to help with overhead costs until Simply Inc. generated revenue. Sarah created a basic business plan outlining her business goals and financial projections, holding herself accountable to periodic benchmarks. She tested ticket prices, locations, and conferences, expanding steadily each time.
With any business, planning for future growth is key. Here are Sarah’s tips on how preparing for future growth:
- Pre-planning and managing current finances is key: “With our conferences, money comes in waves so it’s important to have an amazing bookkeeper to balance and pre-plan!”
- Look for avenues for passive income—whether it’s affiliate links or online courses, finding sources of income that take little effort to maintain can help grow your bottom line.
- Yearly strategy meeting: “Every year all of our company including our business manager has a strategy meeting. We discuss and reassess what’s working and what’s not and how we can improve—this process is a full day, but so important! We go back and look at it quarterly to revisit.”
Every entrepreneur’s journey is different and there are pros and cons to every type of business funding. But no matter the route you choose—budgeting, a strong business plan, and a tenacious aversion to the word “no” are essential tools to launch your next business venture.