When is it a good time in a startup’s life cycle to raise money?

You should be the first investor in your startup. This starts with coming up with a well-thought out plan about what you’re going to do, how you’re going to do it, and how what you’re going to do is actually going to make money. You’ve got some options which I’ll touch on momentarily, but keep in mind that what many people consider as raising money for their business involves finding investors. Traditional investors want something for their money. I’m sure you’ve seen Shark Tank. They invest in business and generally end up owning part of the business. You need to consider how much of your business you’d be willing to give up in exchange to get money for the business. Otherwise, you could end up being pressured into an equity deal that you may not be comfortable with.

With that said, let’s look at your fundraising options and when you could implement them:

Bootstrapping

You need to know the best way to use the resources that you have from day one of your business. This could mean managing your own money that goes into the business and it could mean knowing how to get the most out of the money that you get from investors.

Invest in your own business

From the very beginning of your startup, you should invest in your own business. How? This could mean that you put in a portion of your current income into developing your business. It could mean that you dip into your savings account. Maybe it means you get a second job or a side-hustle of some sort and devote all of those funds to your startup. Don’t expect others to support your business financially if you’re not willing to make that sacrifice, too.

Crowdfunding

Once you have your idea in place (depending on what it is), some production of goods, or your service-based business up and running to some degree, consider crowdfunding. While you may have friends and family willing to give money to your new venture just because they want to see you succeed, you must consider what’s in it for others. Most people won’t give money over just to give when it comes to a small business venture.

Consider loans or lines of credit

When your startup is running, you could consider loans or lines of credit. Just remember that you (personally) may be required to repay the loan or the line of credit regardless of whether your business is successful.

Traditional and angel investors

This is an option once your startup is functioning and shows promise. Traditional investors want something for their money. Make sure that your proposal explains how they will benefit…and remember to know what you’re willing to give up in exchange for the investment. Review the terms of the agreement with a lawyer before you sign anything. Angel investors use their own money (and the SEC has an accreditation process for legitimate angel investors). Again, focus on what the angel investor gets in return. It may not be a share of equity, but maybe your startup will create jobs.

Bottom line: the type of fundraising that you need when running your startup can vary depending on not just where you are, but your ultimate goals. You should make sure that you understand any legal or financial obligations that you will have when fundraising. It may be in your best interest to consult with an attorney who works with startups. At LawTrades, our fundraising attorneys have worked for the biggest law firms in the world and are now helping startups raise multi-million dollar rounds of funding at a fraction of the price. Feel free to give us a visit for a complimentary consultation to kick things off.