How To Fund Your Startup
Like it's fascinating to me that all the successful entrepreneurs I know, they look at being resourceful, they don't look at somebody else needs to pay for this thing. (upbeat music) How to fund your startup, in this video I'm going to help you overcome the challenges. Maybe you have an idea and you're wondering like where does the money come to get this thing started? Or you don't feel like you know the right people in your life to actually help support you and maybe lend you some money to build the first prototype. Those are real challenges, but here's what I know, is I know that some of the best entrepreneurs that I've ever met never looked at capital as the primary challenge, they've always looked at being resourceful, and I wanna unlock that and show you literally eight different ways to fund your startup, okay, it's super powerful. Now I've been fortunate enough that, you know, I've done pretty much every one of these I've gone through some incarnation.
I started building companies when I was 17, failed, did it again when I was 19, failed, tried again finally after like consulting and licking my wounds and building my confidence back up. And at 24 I started a company called Spheric Technologies with the money I saved. But then I've also gone in and invested in a ton of other companies with my own money, companies like Intercom that's gone on to raise, you know, 10s of millions of dollars in funding, Udemy, supporting my brother and his company, supporting my friends locally, like what I've learned is there are different ways to get your dreams, your product, your software funded and that's what I wanna share with you guys today. The first one for me is bank or credit cards. I think that many people start off and they think well I need to get an investor to get involved in my business to start, and that couldn't be further from the truth. At the end of the day if you are a credible person and you haven't made horrible life decisions that have just like cratered your credit score or relationship with your banker then you should be able to go to the bank and borrow some money. I mean ideally you'd have a credit card, I mean some of the best companies, Airbnb, Joe and Brian talked about it, we like applied for all these different credit cards at the exact same time and used that funding to start Airbnb. I started pretty much with my credit card 'cause I mean if any expenses like servers or whatever, that was the way I started. When I started MB Host we needed to buy software and infrastructure and we had lines of credit, and I mean that was, you know, personal lines of credit, loaned to the business, bought all the infrastructure. So I just think business, banking, bank loans and credit cards do have this place, especially credit cards, I just, I love meeting founders that hustled so hard to just make it work.
The second thing is to trade equity and that's both equity in the business, so the value of the business or a piece of the business and sweat equity, your time. So this is nights and weekends and just making it work. I mean a lot of you guys have jobs and I think people think they need to quit their job to start the business and that's just not the case, what I always say is try to get this new business to at least 60 to 70% of your current income and then make the swap. I mean my favorite story to share is PlentyOfFish, the guy, you know, PlentyOfFish.com got bought for 550 million within I think a nine to 10 year period and he started off by running home every day at 4 P.M. and coding till 11 P.M., and getting up early at, you know, 5 A.M., and coding before he went to work at nine, and going to work and working over lunch. And that to me is a beautiful thing. So trade equity, either hire services or professionals and get equity to get them involved in your business to help fund things. The third one is startup accelerators. In most cities in North America or whatever part of the world you're watching this video at you probably have a startup accelerator that's willing to give you 25, 50K, some give 250K, to seed and incubate your idea, and you just need to go through the application process. And it's crazy, like Y Combinator and Techstars is harder to get into than Harvard, but those are legit options for the local accelerators. Many of them have a lack of entrepreneurs coming to them with viable ideas, like they don't have enough applicants that are serious and motivated and have something worth building. So your idea presented in a super compelling way and with a lot of passion and commitment is probably gonna get you in there and get some of that funding.
The fourth area is VCs and professional investors. So VC stands for venture capitalist, these are people that manage funds, so they actually go out and raise their own money which is kind of neat when you understand that, so you're raising money from them, they actually had to do the exact same exercise and raise from what's called Limited Partners, and now the VCs have to make decisions on who they give money to because they need to generate a return over a 10 year period. I say that is because there are thousands of venture capitalists in the world and they're looking for the entrepreneurs, and just so you know, they don't have a job unless people like you go out there and create the future. And I think that's an exciting place to come from and a kind of a reframe from what many entrepreneurs starting off get into which is I need their money to be successful, at the end of the day they need you to actually be successful in their fund. So VCs is a great source. Another one would be local angels and kind of high net worth people. So in your community you have angel groups, these are people that own real estate, they own the car dealerships, they may own really profitable high revenue businesses, and they wanna diversify a bit and get involved with like young and eager and fun companies, so they're part of these angel groups and you can actually maybe on a quarterly basis they have a meeting where you can come in and pitch and raise money that way. So that is a super valuable and typically open up to everybody, you know, even in towns of 100,000 people they have an angel group in your state or province.
Six would be crowd funding. You know, one of my buddies Clay Hebert, one of the foremost top experts on crowdfunding, he said it best, is he said that the cost of failure is gonna go to zero because crowdfunding has leveled the playing field for market validation before you build anything. So not only is crowdfunding an incredible source of capital to or money to start the company, it's also a beautiful way of testing if there's a need, if there's people out there that actually wanna buy what you're gonna build or sell, and you can do that on Indiegogo or, you know, Kickstarter really doesn't like software projects, GoFundMe, there's a ton of different crowdfunding platforms, but at the end of the day, just so you know, it's 20% video and the page itself and the story you write about your project, your software project, and really 80% about marketing and distribution. They're not gonna get you the project funded, you're gonna have to do some work, email some bloggers, email the press, really drum up a lot of interest in that crowdfunding campaign. So super powerful, but there's work involved, so don't, you know, be misled and think this is gonna easy-peasy, 'cause it's not. The seventh is friendly and family, sometimes they call it fools, and I just find that super insulting, so friends and family. These are people that know you best, that believe in your vision, and are willing to back you.
I remember when I started my company Flowtown with co-founder Ethan, it was early days and I had sold my previous company Spheric, so financially I was in a good spot and I could've funded the whole company, but one thing that I felt, and really this was just as a way for us to set the foundation as strong as possible, I said to 'em look, I'll fund, you know, 70% of this, but I need you to go and raise the balance, 30%, from your friends and your family members and whoever, literally just like go find someone who's gonna lend you the money and meet me halfway. And this was a huge reason, and like I always knew Ethan was incredible, but I remember this was like a conversation on a Friday and on Monday he called me and he says I got the money. And I was like all right dude, did you do anything illegal? And he's like no. I'm like, where did you find that money? 'Cause we're talking 10s of thousands of dollars. And he said my mom gave me some money, my dad gave me some money, and a couple best friends from college gave me some money. And for me as a partner that just said so much about Ethan even though we had just kind of got to know each other over the previous year, here are people that have known him his whole life and were willing to part way with arguably one of the most, you know, valuable assets in somebody's life, they were willing to invest in him, and really before there was any product or proof that this was gonna work, and I just thought that said so much. So friends and family I think is an incredible, just be honest with them, just tell 'em, it's high risk, and I'm gonna make the best decision I can with the information I have, but don't give me money you wouldn't be comfortable losing 100%. I just think that's where things get a little dicey when people misalign expectations. And number eight, the most important, and I'm gonna share a really quick tip for you right after this, eight is to fund yourself. I think so many people have jobs and they go, well I'm gonna quit my job and pursue this idea once I raise money. And when I hear that, just so you know, what I'm thinking is you don't even trust yourself or willing to bet on yourself and you expect me to fund that risk, and that to me is just crazy. If you're not willing to put all in, you know, slide all the chips, that's what this motion is, go all in on your idea, but yet you expect everybody else to I think that's just a negative signal and just a really weird place to start a relationship with investors. So funding yourself, digging into your own savings. I mean Maritime Vacation was friends and family, my dad essentially helped fund that business and I to this day continue telling that story 'cause it was super incredible for him to believe in me at 17 years old. MB Host was my line of credit with my brother and his line of credit to fund all the servers. Spheric Technologies was working and funding in myself and saving up 70,000 dollars to eventually start that company. Flowtown was again, me putting my own money in, Ethan putting some of his in, and eventually we raised venture capital from professional investors, you know, guys like, you know, Steve Anderson from Baseline Ventures, first investors in Instagram and Twitter, and just like, and then Clarity again, Mark Cuban invested in that, but I put in, you know, almost half a million dollars of my own money to get that company started, and then we eventually raised 1.6 million, but it's kind of like all eight of these put together. Now I never did an accelerator, I have a great video on how to start your own accelerator if you wanna search that out, I think it's, it's a great way if you don't get in it doesn't mean you should stop doing the things you would've got as value from those accelerators. But those eight tips, right, you know, the going to the bank, using lines of credit, you know, trading equity to help bring in resources in or sweat equity to build the business, to use startup accelerators as a way to fund, validate, and help you grow the business, to reach out to VCs and professional investors is you know, super smart. Going to the local angel groups or finding those high net worth individuals, they're there, they're in your city, they've got millions of dollars, 100s of millions in some cases, and to throw a check your way for 50K is not crazy.
Crowdfunding, cost of zero, cost of failure goes to zero. Friends and family is a beautiful thing 'cause it says so much about trust. And then finally, invest in yourself, that is my mission. Now the tip is is the mindset, here's the way I think about it. Don't raise more money than you're willing to lose and if you lose it, you chalk it up as learning, okay? So that's the way I think about it is you're investing in yourself, in your business, not so much for the financial outcome, but your opportunity to learn. So in some ways it becomes education and that's the way I think about it, so I don't get too hard on myself if like I put 20K into a small little project and it fails, I just chalk it up as learning. Now the best ultimate financing ever, the world's best, kind of like crowdfunding, I just call it customer financing. Finding customers to pre-buy the product that you wanna build as an early adopter, it's a whole framework I've created called the customer creation model, but it is the best form of financing. As per usual I hope this video finds you incredibly well.