Friends and family is an important one. It's not a lot of money, but investors are a little like sheep, and if you can show that you've been able to convince some investors and are committed enough to beg and borrow from your own family, then they are more likely to be interest.
Getting paying customers is the best way to raise money. No equity given up, proof of your business model, and that looks great to investors later on, too.
Incubator programs aren't all created equal. Do a LOT of work to vet them first. Many will offer a small amount of money, offer very little support during the incubator, have no connections at the end of the incubator, and then dump you with no support after the incubator, but kindly taking a percent of the company. There are some good ones, though.
Angel investors and VC are an option, but those are not easy to get and you have to kiss a lot of frogs before you find your prince.
The best thing to do is build your product and keep building it, and talk to as many people as you can. Resources will come out of the woodwork slowly, and connections will be made that will lead organically to what you need.
I guess it depends on what you are raising the cash for and how much you need to raise. If it is mostly to give you and/or your team a living stipend while you develop the product full-time, there are a number of tech incubators you could choose from or you could try to raise a few months salary from angel investors like me.
If you are using the cash more to buy an asset or equipment ( e.g. a food truck ), then you could try pitching it to a bank. I don't think they would go for it, but at least they would have collateral. If you have a personal car, you could try offering that for collateral as well.
- Part-time consulting. If you are able to consult 20 hours a week, that should be enough cash to cover a modest cost of living and maybe some extra to invest in your start-up. A lot of companies start this way. They build specific products for their clients and eventually develop a product/service of their own. Check out 37Signals story on how Basecamp came along.
- If you are developing an enterprise-level tool, you could try to pre-sell it to a large firm first and have them pay an advance. This is tricky, but possible if you are building a certain type of product and have the right experience/connections.
- Build an MVP in your spare time and start charging for it. You may be able to skip the financing step altogether. Either way, you'll have more luck raising funds if you already have some, but maybe not enough to be profitable, paying customers.
- Personal Savings
Some riskier ways to get cash:
- Cash in a portion of your 401k ( you'll pay a 10% early withdrawal penalty + taxes )
- Home Equity Line if you have enough equity in your home. Careful with this because you are gambling your home. Make sure that if the start-up fails, you'd be able to get a job making enough cash to cover the additional debt service on the equity line.
- Personal line of credit. You pay high interest rates and won't be able to borrow that much ( ~25k or so ). You've probably gotten offers like this in the mail before. Your credit card company sends you a blank check and says 6 months no interest loan. Same as above, if the startup doesn't make it, make sure you'll be able to handle the additional finance charge ( which will be crazy high ). Please don't do this one.
I am co-founder of a startup that have some products with kinda average traction (but no profit), and not enough money to finish our flagship product (but I think we can make a the rewrite of the demo... the first demo is on Google Play).
How I would convince a angel investor like you to help?
Build a prototype/mvp/alpha/demo product. Something. Anything. Then depending on the type of startup, there are so many ways to get started. If you live in a big city, go to tech meetups and start gathering contacts who will help you get to angel investors. Or apply to incubator programs like YCombinator (there way more of these than you think). Regardless of the avenue, i repeat, work on your product and your pitch. Neither come easy.
I find none of the answers here will work for me. I'm looking to make a small product, which I believe is a great idea. I need to hire designers and developers every now and then.
Borrowing money from people is not an option, and neither is will banks help me in any way — I'm a student,and 17 years old.
We've tried this. Banks won't loan unless you have prior success in that business. Only a few do Purchase Order financing (where you show them a list of pre-orders that you need money to service) and it's expensive and also requires prior success. All would require a personal guarantee. I had one tell me they wouldn't loan unless I had the amount of the loan in an account at their bank. What's the point of that? Generally speaking, U.S. banks are worthless for startups, unless you want to fund your business with credit cards.
actually there are a couple of VC Banks that do this (again generally further stage companies). I know http://www.triplepointcapital.com/ does this (they invested in our startup, but for equity).
Getting paying customers is the best way to raise money. No equity given up, proof of your business model, and that looks great to investors later on, too.
Incubator programs aren't all created equal. Do a LOT of work to vet them first. Many will offer a small amount of money, offer very little support during the incubator, have no connections at the end of the incubator, and then dump you with no support after the incubator, but kindly taking a percent of the company. There are some good ones, though.
Angel investors and VC are an option, but those are not easy to get and you have to kiss a lot of frogs before you find your prince.
The best thing to do is build your product and keep building it, and talk to as many people as you can. Resources will come out of the woodwork slowly, and connections will be made that will lead organically to what you need.