Hi, I'm Josh Stailey from the Pursuit Group. Today I want to talk a little bit about capital for your company, raising money. Our organization does an Ask the Experts column for a major website in the country and of the people who write in almost half the questions, more than any other questions combined have to do with how do I raise money for my business. So I want to go through several different options that you have and talk about the pluses and minuses of each of them.

The first one obviously is yourself, what’s classically called bootstrapping and it means that you, as a friend of mine in California who runs a company calls it, it’s the kill and eat. That is you don’t eat unless you kill something. So the better term I guess is bootstrapping and it involves living on the capital or the money that you earn and using any excess above your needs to plow back into the business for growth and development. Bootstrapping means you better be prepared when you start it.

When I started my first new business and I'm on my fourth now, I did not take a check out of the company for seven months. I lived on my savings. I knew that was what was going to happen. I actually managed to take a little bit out a couple of months ahead of schedule, but I was prepared for it. Be prepared yourself. Bootstrapping means eating beans. It means being very careful with your money and plowing as much as you can back into the business.

The second source is what a couple of various entrepreneurs in the past have called love capital meaning money from friends and family. It is a good source of capital. It’s people who will listen to you and are inclined to trust and believe in you and write a check to you for the business, but the downside is that if it doesn’t work you have two problems, not one. First of all, you’re broke and second of all you have a lot of people that are very important in your life that aren’t very happy with you. So if you get into love capital one person that I've worked with in the past who actually did it says write an even bigger contract than you would if you were getting a loan or an equity financing from a stranger with people that are close to you and important to you in your life.

The third one obviously is loans, going to a bank or another source and getting a loan.The SBA, the Small Business Administration, which is part of the Federal government doesn’t make loans. That is a common misunderstanding. They actually guarantee private loans do deserving organizations. Right now in this particular economy loans are really, really tough. You almost have to prove that you could do it with your own funds before they’ll give you funds to do it, but it is a resource and you can pledge personal assets, your home for example as collateral to have the ready capital to plow into your business, but you need to be very confident that your business model and your business plan are going to work, otherwise, you may be not only out your business, but out your house as well.

The fourth area is equity funding, meaning you trade a piece of your company for the cash you need to help develop and grow to the next stage. Equity has a huge range. There are a couple of venture capital fund sites on the web and they literally identify almost 20 different stages of capital funding from the very first dollar in to when a company actually goes public, which is called in the venture capital industry the exit strategy, meaning what is the end of it and you better have that in mind when you go out and look for capital equity funding from any kind of venture capitalist whether it’s an angel fund person or whether it’s a traditional venture capital fund, whether it’s a public, private collaborative and those exist today and they are growing rapidly.

In our state for example, Ohio, there are a couple of funds that are matched by government dollars, state government dollars for deserving organizations. Now their hook in it is that there are going to loan based on what they think is going to provide in the way of employment, so if you have a company that you think you can scale massively and yield lots and lots of money, but isn’t going to employ more than four people they are probably not going to loan you the money because they want employment base. That is their reason to put that money in, other than the anticipation that they will get it back.

The final one to talk about is what is called grants and in our news column, in our Ask the Experts column we get a lot of those money requests about I've heard about grants, I've heard about free money from the government and I know that there are some entrepreneurs if you want to call them that out there that promote billions of dollars of money that the government is giving to ordinary people every day for all kinds of things like starting a beauty shop or doing this is that. Yes, that is true, but it’s not the way that you think it is and it is certainly not easy. I've worked with some people that went through it and a couple of them it was so difficult that by the time that they got to the end they were questioning whether they ought to do it at all, but grants are a possibility and a grant means we’re going to give you the money and we expect certain things from you, but one of them isn’t you pay it back. It’s your money to use.

So anyhow, those are the five ways that you can look at raising capital for your business. Choose carefully. Every one of them has a plus or a minus. This is Josh Stailey from the Pursuit Group.

About Josh

Our friend and contributor Josh Stailey passed away unexpectedly on September 10, 2011. We have valued his expertise and willingness to share his insights with us. We discussed the appropriateness of sharing content he provided before his death with his business partners at The Pursuit Group and they agreed sharing his expertise was a fitting tribute to Josh.

Josh Stailey was a 40-year veteran of the marketing and sales wars, a journalism-trained professional who understood the role of information and technology in today’s business world. A consultant and writer, he was a founding partner of The Pursuit Group, which specializes in designing and implementing demand-generation systems for small- and medium-sized businesses. He has also consulted with Fortune 500 companies on customer experience management and content system design.