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7 Ways Entrepreneurs Raise Money For Businesses

By Ashley Morris Star-News, Wilmington, N.C.

WWR Article Summary (tl;dr) So how can you raise money for your budding business? While there is no one right way to go about securing investments, below is a list of possible funding streams that could help you bring your idea to fruition.


Even after some initial capital raised in Wilmington, Ed Hall has had to trek across the state and country to secure funding for his startup Petrics.

According to financial experts, that is not something unique to Wilmington or even the state. Entrepreneurs have to cast wide nets and pitch to potential investors, while also developing their product, marketing their brand and managing all the activity.

There is no one answer or path startups follow in securing investments -- in fact once the companies breach a value of $10 million, they have likely had a combination of the different funding streams.

Hall had the idea for Petrics soon after graduation from the University of North Carolina Wilmington. Hall invented a pet collar that not only tracks pet activity and gives pet owners real-time health data on an app, but also unlocks the food bowl for that specific pet as it approaches. Anyone in a multi-pet household understands when food is dished out into different pet bowls, a dog is likely to gobble up the cat's extra food at feeding time.

The company is still in the testing phase. Even after raising hundreds of thousands in capital funds, Hall said there is still a long way to go.

After getting $50,000 in exchange for being part of an entrepreneur boot camp in Winston-Salem, he signed on with an investor in Silicon Valley who offered a $500,000 investment, but it was all an uphill battle that is ongoing.

"It is not for the faint of heart," Hall said.

Here are seven common ways entrepreneurs create capital for their businesses.

1. Bootstrapping Essentially to bootstrap is to self-finance a company. The founder may already have some capital reserves, or they make chip into their retirement, savings account or even take out a second mortgage. For many entrepreneurs this is phase one for building a budding company.

2. FF&F This stands for asking, "friends, family and fools." In this phase equity is not part of the trade, these are just simple initial investments that get the company going. Experts encourage entrepreneurs to be careful about who is investing into their company.

"Anyone will write you a check," said TekMountain director Sean Ahlum. "Money moves all around the country for a good idea, but the No. 1 thing you want is mentorship, someone's network and channels to market. You want your investor invested into the company."

2. SBA or bank loans Founders can work to secure a small business loan through the Small Business Administration or through banks. But founders should expect banks to be critical. Like other investors, they are considering risk when dishing out money.

3. Non-diluted funding Another option instead of networking to investors is to seek out grant or government funding. This is sometimes more geared toward life sciences, but there are niches available for companies across different fields. One downside to this stream of funding is that if companies rely on grant funding, they have to be prepared to continually apply for grants and hope they are awarded. But an entrepreneur's time can be consumed by grant writing while they could also be networking. This is a long and slow process and never guaranteed.

4. Take advantage of incubators and accelerators An early stage company could seek out opportunities at accelerators and incubators. These networks give businesses resources to grow through mentors, networks, channels to market and more. Some of these places take a small percentage of equity (usually less than 10 percent) but it varies place to place.

5. Angel investors Angel investors mostly work together in angel investment groups or join together for an investment fund. Angels provide capital for startups or individuals in exchange for ownership equity but at the cost of a high-risk investment. In Wilmington there is an active angel network, including the Wilmington Investor Network (WIN) and Wilmington Angels for Local Entrepreneurs (WALE). There are a number of others across the state.

It is said for every 10 investments made by angel funds, one succeeds -- hopefully making up the losses for the other nine. This is why angel networks work to diversify the risks in their portfolio. Angel investors also act as mentors and provide a network to help the companies succeed.

6. Venture capital In 2016 it was reported 143 different North Carolina companies received venture capital funding for a total of $764.9 million invested, according to PitchBook. There are multiple stages of venture capital with investors giving high dollar funds for equity in the company. Think Shark Tank. Venture capitalists are looking for what kind of growth and scalability possibilities exist in the company, as well as the amount of risk.

7. Crowd funding This stream is growing more and more popular, but still comes with its share of risks. In North Carolina equity crowd funding is now legal and there are multiple options for companies looking to raise funds that way. But again, there can be a trade-off from traditional investments that come with mentorship. Non-equity crowdfunding on websites like Kickstarter and GoFundMe can be useful for young companies too.

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