Funding a Business

What Funders Want to Fund

We often hear new entrepreneurs say, “I need to raise money so I can quit my job and work full-time in the business.” Unless you have a wealthy relative or close friend who’s willing to be your benefactor, most early stage equity investors and lenders aren’t willing to fund your salary while you’re starting your business.

Many early stage funders see funding your salary during the early stage as a risk. Seed equity investors want to know that you have skin in the game and are taking as much, if not more, risk than they are. And, bank and micro lenders want to know you have a secondary source of income to make the loan payments if the business doesn’t have sufficient cash flow.

Instead, early stage funders want to see that the money is being invested in scaling the business. Based on our work with some of these early stage funders, here are some things you can raise money for to help grow your business.

Purchase Inventory

If you are in the business of selling physical products, then maintaining your inventory is critical to your success. Whether you plan on making your own product, outsourcing to a manufacturer, or reselling other business’ products, you will need funds to make inventory purchases ahead of your projected sales.

Purchase Equipment

Depending on the type of business you’re in, you might need to invest in machinery, vehicles, or other equipment to improve your processes. The upfront purchase of equipment tends to be a major expense, and its value decreases over time and use. It may be more beneficial for you to preserve your cash flow by financing the purchase and spreading out the cost over a longer time period.

Build Out a Physical Location

If you’re looking to take on a brick and mortar location, you may need to build out the space to your business’ needs. For this, you’ll have startup expenses for design, permitting, construction, equipment, furniture, fixtures, and decorations. And, you will likely have to pay the deposit and rent on the facility while you build it out.

Attract & Retain Talent

While you may not be able to raise money for your own salary, you can lighten your workload by hiring other people as employees or independent contractors. Think about the administrative tasks that make sense for you to now delegate, as well as the specialized work that is necessary to further develop your product or service and grow sales. You’ll need money to hire, onboard, and retain the right people in those positions so you can free up time to build the business.

Market Your Product or Service

To grow your business, you need to attract and retain customers. These days, it’s important for your business to have an online presence through a website, social media, email marketing, and online advertising. You may also need have a physical presence at events. You’ll likely need funds to implement your marketing strategy, ensure your message is consistent across your marketing channels, and maintain relationships with your customers.

Manage Day-to-Day Expenses

As you grow your business, you’ll see an increase in the day to day expenses needed to keep your business running smoothly. At the early stages of your business, your sales may not be enough to cover all those operating expenses. Your cash flow might also be affected by the terms of your contracts with customers or seasonal business trends. As a result, you may need funding to cover your operating needs until your business achieves profitability.

If your early stage small business or startup needs funding to grow, you may be interested in our upcoming Funding a Business course at our Oakland-based accelerator. The deadline to apply is August 24.