Whoa, Nelly! Answering this question can hit hard and fast. Funding any project is a challenge when self-funding, and can be even more challenging when outside sources are assisting in the effort. We'll discuss some different options here, and also tell of some real-world experiences that have occurred.
The Self-Funded Project and the wandering 'Bootstrapper'
Ah, being self sufficient and able to rely solely on your own bank account, credit line, credit cards, or some combination of the three. The challenge here is that with most projects the 'patience' needed has a direct relationship with the 'funding' at hand. Imagine that, you start running out of money, and 'patience' hitches a ride out of town with it! Now, most of us will properly budget and know the constraints of our funding and the goal we desire to reach, carefully balancing each obstacle with it's investment needed (notice I do not say 'cost' here,) trading perhaps a heavier investment now and finding a way to cut a corner or two later on in the process. I always think that when it's your hard earned money on the line, the story is a bit more dear to your heart, and the manner with which it is utilized might be soundly judicious. The key with any self-funded project is your planning for it, knowing the obstacles will come, and guaranteeing a reserve of capital somewhere that can stretch your budget, or at least make it more flexible. Just remember to keep an eye on the goal and not get too distracted as you will incur costs that might not truly be relevant to the goal.
My name is Will, and I am a 'bootstrapper.' (you say, "Hi Will") This is the practice of taking from one successful business to fund another venture and eventually develop it into an autonomous entity. A difficult method of building a business, one that often moves slowly and truly tests your patience. I have, successfully and unsuccessfully, built businesses this way. This method is NOT easy, and will often times be parasitic of the business that is doing the funding. If the goal is true and the aim correct, effort diligent, and the parties involved on board for the long haul, then this can and should be a success. I caution anyone attempting this to make sure the buy-in from the primary business is there, because if it is not, it will be ugly before you know it. Bootstrapping can and should work if the planning and execution stay contained and manageable. One of my biggest mistakes building an outdoor products company a few years ago was going too broad in product offering and not staying deep and focused on the primary breadwinner. Going broad typically leaves each channel exposed to greater risk, and while we all hear that 'bigger is better,' that typically is not the case here. Focus your energy, and funds, towards the goal and don't allow for 'scope creep.'
I've Got Friends and Family
Maybe the self-funded cash is limited, so this new great idea is going to have to rely on Aunt Louise and your BFF Peggy. They believe in the product, and they believe in you, but do they know the process their money will be put through? It is always a delicate situation when you enter into this relationship, so be cautious, and thoroughly vet both your intentions and those of the other party, carefully detailing the expectations, risk, and process you will go through to get to your goal. Constant communication, or at the very least, consistent communication can solve many of the problems between investors and those they invest in. A good display of action steps and goals met, and goals not met, can often times solicit positive assistance from the investors, even if their skill sets were not looked upon for guidance. Sometimes those of us deep in the trees fail to see the forest as a whole, so a clear and objective perspective from outside the daily routine are helpful. Building a relationship, and showing your work, will develop a stronger trust between you and those who invested in you.
The Ever Evil Bank, Jerry the Angel and Shark Tank
Let's face it, banks like success stories, and your product idea is still just a glimmer in your eye. Attempting to get a bank to fund an idea will typically only work if you are in a good personal financial position in the first place. And if so, they are not necessarily looking at your idea, they are investing in you, and typically it is only a loan or home equity line, tightly secured against your assets. Now, there are great options using the SBA for smaller start-up capital in the micro loan arena, but again, your personal financial statement needs to be buttoned up tight. Personally, I would not recommend attempting traditional bank financing on speculative projects. It is better to risk money you have, than money you haven't earned yet. If you do, however, find this a clean option for your development needs, just be prepared and follow the same advice I prescribed earlier by developing a strong relationship with your banker and keeping them informed.
Jerry the Angel is a weird sort. Almost too good to be true, somewhat unreachable, and always a carrot for development. Jerry's a great guy, loaded with cash, and invested in a wide range of projects, some earning, some not. You call Jerry's firm one day and begin the process of pitching your idea. Jerry's jacked - He loves it. His team wants in, and delivers to you nine pounds of legal documentation and financial scribble for you to digest. Woohoo! This is gonna happen... Well, maybe, maybe not. Let's get serious here, angel investors and similar forms are smart, diligent investors that don't leave t's uncrossed and i's without dots. They are thorough and will require you to be as well. The great piece behind angels is that they can typically fund the entire project easily and get you rolling with a small staff, resources, and capital necessary to make a success. They will, however, take a piece of the company and reduce your equity. That is a high price to pay, however it sometimes is a whole lot better than attempting to do it on your own and never realizing the success or losing the opportunity when you had it (technology kids, beware - tech moves faster than development...) Research and find the appropriate party for this type of funding. Deep pockets are not always the right pockets, and sometimes the ones that seem to be oppressive are the ones that will do you the most good. Be objective, study the interested parties well, and make a decision based on the best available resources offered without compromising too much equity or product integrity.
Swimming in the Shark Tank on TV looks like fun! That Kevin, he's funny! Beware the idea that this is an easy process. My friend Matt prepped for weeks, went on the Tank, pitched his idea, had his partner slapped around a bit, and walked out thinking they had a deal in hand. One year later and no money delivered, the deal fell through after the legal crew demolished the hope. The fortunate part was that the exposure was huge, catapulting sales and driving the business to success. While the money, and mentor ship would have been welcome, it turns out that these deals are not sealed as often as TV might suggest. Yes, there are success stories, but I might caution the starry-eyed traveler to Hollywood that the process is far more than the 12 minutes of air time you receive. Just being picked to be on the show has pretty rough odds. This one, my friends, is a long shot, but nothing ventured, nothing gained!
Hey You, Fund Me!
Kickstarter and Indigogo and Rockethub. All great crowd sourcing options. I love these platforms and they have spawned so many great success stories. This is a wave for the future and a very viable one indeed. While they are not perfect by any means, they give anyone with a smart phone and an Internet connection the opportunity to fund a project. I have spent many hours assisting folks with these processes and I will tell you that the effort to tell your story is so critical. People will buy into the story more than just the product, trust me. Be prepared to write and script the best possible pitch, have a sound product/project, and make sure you can actually deliver. Of the projects I have worked on, 3 have successfully funded, 7 have failed to fund, and 1 earned the attention of another investment group to the tune of over $1 million in funding. Now, one of the projects I assisted with funded successfully, only to have the owner of the project default on the investors and is now running scared with people after him. This is not free money (although Kickstarter assumes no liability) and should be treated seriously, and only those with the resources to deliver on promises would enter this arena. In other words, have your you-know-what together and be serious about the project.
There are many ways to fund your project. Experience suggests that as much planning into the development cycle must also be paralleled on the financial side. Whatever your course of funding, be prepared for any combination of the above to get you where you need to go. I encourage you to pursue any and all, and the best of luck and good preparation to you!
Below are some helpful links to info on some of the before-mentioned funding options: