You have decided to start you ideal business and now you have a decision to make. How will you afford to get it up and running?! You can’t just magically wave your wand around and suddenly the business is so. These things can often times cost a serious amount of cash to enter into various industries.
In the book “Founder’s Dilemma” it discusses three different options for obtaining funding other than self funding. Friends and family, angel investors, and venture capitalists are all the possible sources. Each have their pros and cons but I think something to think about is what kind of business you are trying to start.
If your company is a smaller less scalable business, then I would say you need not spend too much time trying to find angel investors and venture capitalists. Most big investors are interested in major returns and that is not a reality for most entrepreneurs who are starting small businesses. When you are starting your average business in your local area, you are more than likely wanting to maintain control as well.
A few blog posts ago I mentioned the idea of King or Rich. I believe this idea plays into what kind of investor you should seek as well. With friends and family investments you can maintain much more control, as they are not as typically so interested in major returns and more interested in your success. However, angel investors are interested often times in a solid return, or just being a part of the startup and leading a next generation of entrepreneurs. This is a hard line to navigate because since they know more than you, they are going to want to control a strong portion of the business.
Venture capitalists are simply interested in the outcome and what returns they can get from you and how much ownership they can have so they can make major decisions. Possibly even be able to remove you from the role of CEO and put someone they find more capable. You risk losing the control you desire but that is not always a bad thing.
Essentially, what you need to figure out early on is how big do you want this company to be. Do you foresee it growing exponentially? Or are you capping out at a more localized level and mom and pop shop style? You can even start off in that way and if you decide to scale it, you can always reach out to major investors at that point but this is how you need to make your decisions.
For my wife and I, we are going to start off with friends and family because we do not need too much cash upfront and can grow from there. We are not looking to expand like wildfire, so we will only seek minimal investment for us to maintain control.