September 17, 2018
KNOW HOW

Funding a startup begins with the basics

Anthony Price is founder and CEO of LootScout.

Inc. magazine's annual 5000 issue introduces the newest crop of America's 5,000 fastest-growing companies. The magazine has a pullout list – longer than your arm – including little-known companies such as SwanLeap, PopSockets, ShipMonk, SnackNation and Fundrise.

The fastest-growing company is SwanLeap. This business saves large companies money on shipping and manages logistics. Started in 2013, its three-year growth rate is 75,660 percent with $99 million in revenue in 2017.

Long before a startup gets its first customer, the founders are thinking about solving a problem and dominating their market by releasing their disruptive product into the world.

They want to create the next big thing, autonomous driving cars, artificial intelligence software, or a way to revolutionize the foods we eat. This message is music to the ears of investors seeking to hitch their money to a fast-moving startup, with the goal of a large payout in return.

Start with reality

Before you start a business, think about why you're doing it.

The best advice I ever received was don't do it because you're running away from something, do it because you're running toward something.

Start a business because you want to have control over your destiny, you love the work, or to provide a better solution. Always keep customers in the forefront of your thoughts by solving their hair-on-fire problems.

When you do, your chances of success increase.

Know the difference between a small-business owner looking to open a neighborhood pizza restaurant and an entrepreneur who dreams of opening the next great pizza chain.

There's room for McDonald's, Five Guys and The Boynton Restaurant & Spirits.

The world needs entrepreneurs tackling Mount Everest-size problems and small businesses providing solutions now; knowing which one you are will help you build and fund your vision.

Match capital to your needs

If your aim is to build a fast-growing business in a large market, investors may be the way to go.

Fast-growing companies solving large problems will attract angel investors and venture capitalists.

Investors are investing in the management team's vision. In Dave Berkus' book "Raising Money" he says entrepreneurs need three things when it comes to raising capital: 1) A large potential market, 2) an easy-to-understand story to communicate to potential customers, suppliers and investors, and 3) a secret sauce – a unique factor assuring success.

Small businesses don't have access to wealthy investors or bank funding, but that doesn't preclude other capital resources.

Your first option is to bootstrap it. Use your savings, retirement account, home equity line of credit, credit cards, cash in your life insurance, or sell your valuable possessions.

Family and friends may be an option to invest, but contact a securities lawyer to ensure no laws are broken.

Another option is a microloan from a community development organization. Look for local and state economic development funds or grants. The City of Worcester has a microloan program, grants and other incentives.

Crowdfunding – raising small amounts on the internet – may be an option.

Kickstarter and Indiegogo are great ways to test how the public may view your offering. Learn about investment crowdfunding: visit Wefunder, Indiegogo or SeedInvest.

In the end, know your options, and leave no stone unturned.

Anthony Price is founder and CEO of LootScout. He is the author of the book, "Get the Loot and Run: Find Money for Your Business." Reach him at anthony@lootscout.com.

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