Today I received a note from a young BC entrepreneur (let's call him Peter) with a problem. He's about to start a service business, and had an angel ready to provide funding in return for 50% of the equity in the business.
But he began to get cold feet, thinking that might be a lot of future growth he's giving up for the price of a fancy car. He asked my advice. Here's what I said:
"Thanks for your note, Peter. I think you are right to be concerned.
"My best advice would be to contact Futurpreneur at once. This is a national not-for-profit organization that supports young entrepreneurs (and some not so young) with loans, and referrals to BDC for more loans (if appropriate). It also connects you with a local mentor to provide stable, objective feedback and advice.
"You're stuck in the no-man's-land for startup funding. It'll be hard to raise the kind of money you're talking about for a non-tech startup. However, keep in mind that a loan, although you will need to start paying it off immediately, allows you to keep all your equity for now. If you truly believe in your business, you should see that equity as more important and much more valuable, long-term, than the interest payments you'll be making.
"(And if you don't truly believe that, you shouldn't be taking investors' money in the first place.)
"Bootstrap startups are tough. But they let you keep more of your hard-earned sweat equity, and avoid potential shareholder disputes.
"If you need more or other funds, canvass family and friends for capital (no-interest loans are best). Show them a business plan that explains what you are going to do, how you're going to do it, and why you think customers will buy from you. Make sure potential lenders/investors know the risk (i.e., they could lose it all). Then work twice as hard not to let anybody down.
"Hope this helps. Let me know how things turn out."