Monthly Archives: November 2013

Benefits of Startup Funding from Friends and Family

Benefits of Friends and Family Funding from The Startup Garage

Benefits of Startup Funding from Friends and Family

During the early stages of a business, the founding team should discuss the startup’s funding strategy. Based on cost and revenue predictions, long-term funding needs can be projected. Mobile apps must spend $30,000/year in marketing to be a top earner. SaaS business models are unprofitable for the first 12-24 months of a given customer’s life.  If initial startup costs are low for a first-time entrepreneur, friends and family financing should be considered. Part 1 of this two-part series explores the benefits of raising money from friends and family.

Funding is usually obtainable quickly due to your existing relationship.

Your friends and family already know you, so they can easily trust and have faith in your business venture. Investors want to get to know you before investing, and it can usually take a few months before you see any money.  Another advantage is you do not have to go through the steps of applying for a bank loan, which could take weeks for approval. The loan process is simplified when asking someone you know. Typically you will receive the money once they say yes, but be sure to make things official by signing a promissory agreement.

If they can trust you, then an investor is more likely to trust you as well.

Family and friends funding is only the first round of funding for your company. Investors are more inclined to give funding in the next couple rounds if they see that the people closest to you trust you and are willing to invest in your idea.

Lower interest Rates

A huge and important advantage of borrowing money from friends and family is that it is very unlikely they will demand a high interest rate on a business loan. Of course, it depends on the relationship and the situation, but it is possible your family member may offer you the money with no interest rate at all. This gives you more money and allows you to focus on developing your business, especially since most lenders are hesitant to lend money to startup companies without a proven background and reputation. If these lenders do decide to loan you the money, interest rates can be very high. As with all business deals, make sure to put the deal in writing and make sure every party understands and agrees to the terms before signing the paperwork.

The investment terms are usually more flexible and potential exists for numerous equity or pay back methods.

It is important for all business loans, even those financed by family members, to be properly structured especially when it comes to the repayment terms. Family members may be more flexible and arrange more favorable repayment terms, whereas other lenders normally will not be. As stated before, make sure the terms are written down and understood to avoid any misunderstandings and disputes down the road.

They can give you the extra push that you need.

Knowing that your loved ones have invested in you, you may be motivated to do more than what is expected of you to be successful.  Your family and friends will also most likely be more forgiving than other investors during your business ups and downs when it comes to repayment and

 Want To Learn More?

ebook-capital-raising-from-fff

Download our free Raising Capital From Friends, Family & Founders eBook.

This book overviews best practices for raising money from the first people you go to — your family, friends & founders. Dealing with money in personal relationships can get a bit tricky. This guide will cover fundamental concepts, legal issues and material you’ll need. It will help prepare you for the difficult conversations and in some cases enable you to avoid them altogether.

Get Rich Quick? Realizing Long-Term Online Business Venture Success

Business Planning Advice from The Startup Garage

Get Rich Quick? Realizing Long-Term Online Business Venture Success

In the last few years, thousands of people from all over the world have found success with various online jobs and businesses. Unfortunately, there are also many who have a lost a lot of money due to online scams. In order to avoid falling victim to these scams, you should learn how to spot the differences between legitimate online business opportunities and bogus ones.

For starters, you should never believe in get-rich-quick offers because when it comes to earning money, there are absolutely no shortcuts. You should also have a clear business plan to follow if you want to enjoy long-term success in your online business venture. The first step you need to take in creating this plan is to examine the different online opportunities available. Look at some of the most profitable online businesses and choose one that will work well for you. Conduct some kind of feasibility study to determine if a particular online business opportunity is going to be profitable in the long run. More importantly, make sure you choose a niche you genuinely like. When you start an online business that earns money but you don’t particularly enjoy, there’s a good chance you are going to eventually lose interest in it.

 

Set Goals

Another important part of the planning process is the listing down of your goals — both short-term and long-term. Figure out just what you intend to achieve with your online business. Is this something temporary that you intend to use to earn enough for a major trip or your child’s college education? Or is it something you see yourself doing for the rest of your life as a career? Whatever your objectives are, they need to be within your reach.

Once you have laid out your goals, you then need to determine how you can achieve them. In this stage, you will have to finalize what kind of product or service you wish to sell, and figure out the best way of how to advertise it to your target market. Some of the common advertising and marketing strategies for online businesses include putting up your own website, blogging, pay-per-click advertising, and joining link exchange programs. Whatever product or service you are offering, the important thing is to put it out there and let the world know about your business.

Execute

When you’re all set, it’s time to implement your plan and launch your online business. At this point, you have to realize that no matter how well you have planned and prepared, there will always be obstacles that may block your way towards success. What you should do in these situations is to learn from whatever mistakes you commit and continue. The moment you let the mistakes get you down is the moment you let go of the success you can potentially achieve for your online business. It is very important to stay motivated and determined throughout the entire process. Short-lived success may come with those bogus get-rich-quick scams, but if you are willing to invest enough time and effort into a legitimate online business venture, you will be able to enjoy much bigger rewards in the long run.