If you’re looking to start a business in the San Diego area, fundraising is a critical step. Consider the fact that, according to Small Business Trends, more than 75 percent of small business owners use their savings as the initial funds for their company. However, only 40 percent of small businesses are ever profitable. Perhaps most concerning is the fact that more than 80 percent of companies that fail indicate cash flow problems as the primary reason for failure.
Below, we’ve provided you with a step-by-step guide to begin financing your new business venture. Following these steps will not only help you raise the capital for which you’re seeking but put you in the best long-term position for success as well.
1) Evaluate Your Needs
Before you begin your initial fundraising campaign, the first thing you should do is evaluate your needs. Why are you looking to raise capital? Are there areas where you could cut costs? For instance, instead of renting a lavish office, you could rent a flexible premium coworking office space in San Diego instead. Renting a coworking office space could save you thousands of dollars per year that you, as a result, would not need to fundraise.
2) Deposit Personal Funds
Once you know exactly how much money you need, you could start by funding your startup with your own money. It may take you longer to achieve your ultimate goal, but it also allows you to remain in complete control of your business. When fundraising, many donors will want a piece of equity in your company in exchange for their contribution.
However, you should also be cautious about taking on a lot of debt. We’ve heard horror stories from small business owners who not only drained their savings accounts but took on tens of thousands in debt as well. This is an incredibly risky endeavor. We recommend contributing only what you can afford.
3) Ask Friends And Family
Once you’ve invested personal funds, you can then ask your friends and family for assistance. Your friends and family could be willing to give you a loan without asking for equity in your company. There are guides available online that detail how to ask straightforwardly while avoiding the awkwardness of mixing relationships with business.
4) Secure A Grant
Depending on the nature of your business, you could be eligible for a government grant. Be sure to check out Grants.gov, which provides information about more than 1,000 federal grant programs.
A crowdfunding campaign, such as Kickstarter, is another excellent way to raise capital without having to sacrifice equity. Receiving numerous small investments could quickly add up to a large sum of money.
6) Solicit Funds From Outside Sources
If the above steps still leave you short of your fundraising goal, you’ll need to look to outside sources to raise capital. You should apply to angel investor groups in the San Diego area, which can help put you in contact with those in the industry who share your goals and passion.
You will likely find access to these groups in your local coworking office space. If you need a significant sum of money, such as a million dollars or more, you could also look into obtaining cash from venture capital investors.