Michael Lewis, blogger at Money Crashers, explains more questions entrepreneurs should ask themselves when searching for start-up cash for their new carwashes.
Who might be interested in investing in my company?
Family members may be less discriminating than investors, but their contributions can lead to strained relationships, explains Lewis. Several other funding sources exist, however.
- VCs and Angels funding are rare — Less than one percent of companies receive funds from venture capitalists (VCs). Few companies can make it through the stringent process.
- Women-specific struggles — Women often find difficulty because they don’t belong to the “good old boys’ network,” notes Lewis. Many men may often not take them seriously. Websites like WomanOwned.com provide resources to female-owned businesses.
- Crowdfunding — Individuals with incomes less than $100,000 can contribute up to $1 million to small companies through the Jumpstart Our Business Startups Act of 2012 (JOBS).
What are my legal responsibilities to potential investors?
The U.S. Securities Act of 1933 and the Securities Exchange Act of 1934 detail businesses’ responsibilities to their investors. Companies should provide investors understandable factual information and forms, shares Lewis. Legal advice could also come in handy, he adds. Hiring an attorney could help avoid fraud charges, confusion or other legal problems.
How do I negotiate a win-win agreement?
Investors and the company must agree to accomplish their respective goals, states Lewis. At minimum, negotiations will include:
- Amount of capital invested
- Timing of the investment
- Return on investment
- Timing of the return to the investor
- Certainty of the return
Entrepreneurs can benefit from hiring a professional to assist with this process. Persistence in the face of rejection is also critical when raising startup money.
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