My little precious startup idea is hungry and I want to feed it in the hopes that in a gazillion months it will pay for itself and for my therapy sessions and all the anxiety medicine I am now dependent on, so naturally, I think: Hey, VCs are going to eat this up, baby. Oh yeah show me the money.
I put my best shoes on, armed with my solid business plan I knock on the door, an analyst asks me a few questions, an associate giggles, and a partner hands me my butt and shows me the door. Well that was fast, what happened? They didn't even get to the business plan part! How outrageous and WTF!
The giggling probably started when big bird was brought to the table. The Money. How much money do you need? A 100k? 200? A million?
Most VCs with a decent and non-tiny amount of AUM would not bother investing in a "lifestyle" idea. What is a lifestyle idea? An idea that is limited to a certain capacity of profit and growth opportunity. Think a "restaurant" or a "barber shop"
You can't really blame them; VCs are limited partnerships that are bound to a lifespan between eight and 10 years and on very rare occasions, 12 years. No general partner in their right mind would approve an investment that stretches over a period of time and adds next to nothing to their 20%.
Now, that VCs are out of the question, there are a few options where lifestyle businesses can get the 50K they need.
1-Bootstrapping: you dig in your pockets, bank accounts, and search the couch for lose change. Bootstrapping has two great advantages: a) you maintain 100% equity of the business and b) it is the easiest source of funds.
Unfortunately, sometimes, you just don't have the 50 or 100k or maybe you are saving your money for all the accumulating child support or paying back your bookies. In this case, take a look at;
2-The Tripple Eff: Friends, Families and Fools: great news! Your mom thinks you're brilliant and your best friend probably has nothing better to do so they will give you the money. Not so great news: a) they are fools. They are not investors and don't understand the risk associated with startups. b) they will view it as a personal loan, so if you're one of the nine startups that fail you will be forever stained as the bastard who took a loan and never returned it.
3-A Bank Loan: some quasi "VC department- lol" of a major bank would finance such a small project. If not, you can acquire a business loan. Before committing your first born to collateral, please consider the following: a) bank gets senior position on your assets. b) is it a pledge of shares loan? c} a personal guarantee might come bite you in the badonk and your spouse's badonk..
Ok, so you don't want to serve time or sell your kidney to service your bank loan, your best bet is to talk to the angels.
4-Angel Investors: They are angels because they save entrepreneurs a lot of humiliation. Their advantages? a)they understand the risk b) they know the people who could advice them on the validity of your idea/plan and who could also advice you. c) they can write you a check tomorrow (where in, VCs would usually take nine months to close). d)they are far more flexible about their return on investment or return schedules and forms of payments.
There are other roads to venture finance, guys, so don't lose hope if you're broke, or your contact list does not contain any wealthy people. Hopefully when my boss deems me worthy of such knowledge, I will share it with you because I am feeling especially generous and giving*
Have a gravy weekend.
*Might be the long day+sugar crash talking.