Show Me the Money!
Is passion crucial to your success? Or is it just the cherry on top if you’re lucky enough to have a business that pays the rent and fuels your soul?
Imagine this: It’s Friday night. You worked hard on your business all week. You made a decent profit, but you don’t care for what you’re doing. It’s just a family’s business—or a franchise you acquired to live a comfortable life and pay rent. You’re looking forward to the weekends and dread Mondays.
Now compare this to a week when you’ve worked the same hours, probably more, on an idea you care about. You’re probably more excited than tired come Friday. That’s energy you get from working on something you’re passionate about. Passion will keep you going even when profits are down and customers are rude. It’s what fuels many startup founders and social entrepreneurs.
Passion is also contagious. It shows in the way you present your ideas when pitching investors. If they sense that you don’t believe in your idea, they might hesitate in supporting you. Securing funds is one of the biggest challenges new entrepreneurs face. Having enough money to execute your plans is crucial, whatever stage your business is in. Passion can help you get there.
Still not convinced that you can use passion to get funding for your business? Let the story of 14-year-old Benjamin Stern inspire you. Stern got the idea for Nohbo, the world’s first single-use, eco-friendly shampoo ball, after watching a documentary on the damage plastic bottles cause to the environment.
Excited with his idea, Stern began researching the market, chemistry, and patents to create an environmentally friendly shampoo. But with a part-time income of a grocery clerk, Stern didn’t have enough funds to pursue his idea. Even the initial investment from his parents and grandmother weren’t enough.
He tried Kickstarter in January 2015 but failed to meet his funding goal. Stern’s passion for reshaping the shampoo industry was unrelenting though. With the help of his grandmother, he appeared on the television show Shark Tank, in which investors evaluate ideas for potential and funding. Despite having no sales record or tested manufacturing line, Stern received offers from all three “sharks” or investors on the panel.
Barbara Corcoran and Robert Herjavec offered to invest in his idea, contingent on getting a patent and deal from Estee Lauder. Mark Cuban, however, offered Stern the $100,000 he asked for in exchange for 25 percent equity in the business. Nohbo received various additional investment and distribution offers because of his Shark Tank appearance. Cuban’s funding and mentoring also helped. This is further proof that being passionate about your business can help you grow in leaps.
As of April 2016, Nohbo exceeded its second crowdfunding attempt. Stern now has the support of several mentors, and enough funds to expand his business.
For your own business, you can get a loan from a bank, but that’s only possible if you have a good credit score, or collateral. Here are five additional ways to leverage your guts and passion to get funding for your business ideas.
Venture Capitalist Funding
Venture capitalists are professional investors who finance qualified startups with a proven idea and path to monetization. Some VCs specialize in tech, others in businesses with a social cause. Because VCs provide large funds and mentorship from a board, funds are usually granted to scalable business ideas, like Uber and Airbnb.
Not ready for a VC? Try an incubator. Business incubators provide seed money and guidance to entrepreneurs with a promising idea, who are not yet ready for a VC. Competition is tough, so research your target incubator’s application process and specialty to increase your chance of getting accepted. Visit The International Business Innovation Association (InBIA) for a list of U.S. based and international incubators.
Angel investors are wealthy individuals, often doctors, lawyers, or entrepreneurs who invest in early stage businesses in exchange for equity capital. Like VCs, angel investors also provide funds and mentoring. Unlike VCs who use funds pooled from different sources, angel investors use their own money. Because of this, many angels could get more hands-on in directing your business’s direction.
You can find angel investors at Angels Den or Angel Capital Association.
Do you have a prototype or concept of a product, but no funds to manufacture enough of it to sell? Crowdsourcing might be for you.
Create a demo video and a description of your product and upload it on crowdfunding sites like Kickstarter and Indiegogo. If a backer likes your idea, they will fund it in exchange for a reward or perk. Rewards come in different forms, such as having a product or feature named after the backer, specialty items, or early access to your products.
Your product doesn’t have to be perfect to get funded. Creative entrepreneurs use crowdfunding to get feedback on product specifics like colors and features. Crowdfunding is also a great way to test the demand and profitability of your idea.
Government Grants and Loans
The US Small Business Administration works with different lenders to guarantee loans for small business owners. They offer microloans, general business loans, and real estate or equipment loans to qualified entrepreneurs. Requirements and loan amounts vary depending on the intermediary lender, which can be local non-profit groups specializing in lending to and assisting small businesses.
Government grants are also available for businesses supporting specific sectors, like new technologies, social needs, medicine, and education. The application differs per grant because the organizations or individuals funding them have their own causes and reporting requirements. Competition is also tough so make sure you have a compelling application.
Several for-profit and nonprofit organizations provide microloans to credit-strapped but deserving entrepreneurs. The amount you can borrow depends on your business idea, profitability, and industry.
Accion USA loans qualified entrepreneurs $5000 to $250,000, depending on the factors mentioned above. Kiva is a peer-lending platform. Borrowers post their idea and the amount they need, then different creditors around the world pitch in any amount, sometimes as little as $25, to raise the amount needed. Kiva doesn’t receive any profit from the transactions; it merely connects the people willing to lend money with those who need it.
You don’t need Mark Cuban—or any of the sharks on Shark Tank—to grow your concept. A business coach can hone your idea, streamline production, refine your pitch, and guide you on the path to securing funds for your business using a combination of the strategies outlined in this article.