Entrepreneurs & Seed Money

Wednesday, August 16, 2006 at 01:55pm by David Askaripour in Funding

When first starting a business many entrepreneurs have little to no cash on hand. When I first started out I had big dreams of getting millions of dollars from some Venture Capitalist willing to throw bags of cash at me. Nope. It never works like that.

I firmly believe that one of the best sources of funding that you can receive as a start-up is from your family. I was fortunate enough to raise a few thousand dollars in seed funding from my family when I first started out.

It�s more realistic to seek funding from family than to envision receiving bucket loads of cash from investors dying to pump cash into your business. In fact, it�s quite the opposite as VCs turn down most proposals within seconds of reading them. The odds are against entrepreneurs ever seeing the face of a dollar from any VC.

Knowing that, close relatives and your immediate family can be a lifesaver for the budding entrepreneur in dire need of capital. You probably won�t have to worry about strict contracts and disgustingly high interest rates when dealing with angel investors such as your family.

As a new entrepreneur, you must understand that starting a business without a lot of cash to back you is going to be commonplace. It�s going to be tough, but you have to be creative and just stick with it.

Don�t drive your car anymore? Then sell it. Have a ton of books that you�ve read? Then sell them on Amazon. Have a bunch of camcorders, phones, and gadgets that are of no use to you? Then get rid of them on ebay.

These are just a few ways to help fuel your business. It�ll be up to you � the entrepreneur � to really think about the best ways to seed your new business. With a little bit of creativity and some follow-through, your efforts can go a long, long way.

Keeping Sharp:

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3 Comments

Adam

August 17th, 2006 at 9:04 pm

David, you are right on man. So many people want to get tons of venture capital but aren’t willing to make a few sacrifices like selling a car or a few books. I think that starts you off on the wrong foot - by sacrificing you learn the value of the dollar and will keep that mentality no matter how large you grow. Not to mention I wouldn’t want the pressure of having to live up to the expecations of a venture capital firm that just threw a ton of money at me…there’s enough pressure as it is lol.

David Askaripour

August 18th, 2006 at 3:32 pm

Adam, yeah spending all your time trying to seek VC funding right off the bat isn’t the best bet for most entrepreneurs, right. It’s best to bootstrap the business for as long as possible and grow organically. Right on.

Matt

April 14th, 2007 at 1:42 pm

To be honest with you David, I read this and had to make a comment.

Every business I have started has been with very little capital. My mentality is that you have to put money in to get money out. So I started small and built it up over time.

Need a computer? beg, borrow, steal. Keep your money in your pocket until you can afford one. Need a mobile/cell phone. Dont’ go and buy the best, make do with what you can afford. Need business cards? A new suit, a new car? Spend money wisely. You have four appointments to keep. Hire a car to go and see them, borrow a car, you need a suit? Go to a charity shop and have it dry cleaned so it at least looks good. Invest in good business cards, don’t use false economy and make your own. You need to covey professionalism, not tackiness.

This is your business and look at yourself through your potential customers eyes. Spend money wisely and don’t try to impress to much with flashy cars and sharp suits. You’re not in that realm yet.

Get your first client and make some money out of him, then your second and as the money starts coming in, you can invest wisely as and when you can.

In my opinion, building a business is just that. You start with a plan, then you survey the land. Then you dig the foundations, lay them and then, when everything is ready, you start to build it brick by brick. You can’t build a wall without good foundations. You can’t build a wall in one day. Take your time and do it well and start with the bare essentials. The rewards will come in the future as you start to build upon your foundations.

My point is, that if you meet with a VC and he hands you millions of dollars right away, the chances are that you start running before you can walk. Before we can walk, we learn to crawl, once we master that, we need to know how to balance and so on.

Accept hand outs and work towards getting them. A plan alone will not whet the appetite of a VC, firm foundations and a good, well laid row of bricks will, because he can see the floor plan, he can see the work you have put into the building and he can start to see the potential.

Also, as a footnote, selling your idea to a VC is only 10% - selling yourself to a VC is 40% and the return they will get on their investment is 50%.

Matt