I was recently cruising the techcrunch forum and found a great reply to a post on getting angel investing. This is a question we’ve been asked many many times. Here is the best synopsis/answer I have found.
Here is a link to the full thread
“If you are a pre-funded startup you typically have 3 options for raising capital:
1. Take out a loan (debt capital)
2. 3F (Family, Friends and Fools)
3. Angel Investor
Required capital: $5-$50K
Bootstrap with as much self-funded money as you can afford (this will help you refine your design, features and business model). If you can gain some traction (i.e traffic, members, subscribers)for your site then you have a much better chance at attracting investors and end up with a better term sheet.
Required capital: $50-$100K
3F – Family, friends and fools. You should be able to raise this much through your circle of trust. Be careful when going outside of your circle because raising $$ for your company is considered a securities transaction. (I’m sure Canada has similar laws and regulations regarding Private Offerings and exemptions). Again – the goal here is to get something, anything up and running to help attract investors.
If you really believe in the idea – I’d also consider taking out a loan to help bootstrap the company. This may seem a bit illogical, but say you need $100K and end up giving some investor (10%-20%) of your company in exchange for the use of her $$$. 1 year later you either sell it or get to an A round (VC) with a $3M valuation. You just paid the angel what amounts to 3x-6x for a 1 year loan of his money. In any other legal transaction – we’d call this usury :-). (Of course you can always opt for a convertable Note instead of straight equity).
The bottom line is keep all of your options open when determining where and how to raise your capital. ”
If you wanted it to build a product you’d find a way to get time to work on it. If you really wanted to start that new hobby you’d sacrifice something to find the time and money to do it.
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