Wise Bread Picks

Former kid entrepreneur, co-founder of iContact (a leading on-demand email marketing service) while an undergraduate student at the University of North Carolina at Chapel Hill, and now Chief Executive Officer of iContact, Ryan Allis, has lots of ideas for getting money to grow a business. Hes got real-world experience, which he shares in his book Zero to One Million: How I Built A Company to $1 Million in Sales. And How You Can, Too .

Using Ryan’s expertise as a guide, here are ways, simple to sophisticated, to get money for your business:

Former kid entrepreneur, co-founder of iContact (a leading on-demand email marketing service) while an undergraduate student at the University of North Carolina at Chapel Hill, and now Chief Executive Officer of iContact, Ryan Allis, has lots of ideas for getting money to grow a business. Hes got real-world experience, which he shares in his book Zero to One Million: How I Built A Company to $1 Million in Sales. And How You Can, Too .

Using Ryan’s expertise as a guide, here are ways, simple to sophisticated, to get money for your business:

1. Use money from a regular job, part-time job, one-time gig, or contract work.
2. Generate cash from your business and re-invest it (also known as bootstrapping).
3. Get a personal loan from family members or friends (iContact bought server equipment through a loan from a friend).
4. Request a loan using Prosper .
5. Set up a credit line with corporate credit cards (iContact has 2 credit cards with a combined $160,000 of credit available).
6. Use personal credit cards (I know someone who funded her business, a chain of tanning salons, with credit cards. She paid teaser rates only and kept track of when promotional offers ended, and when she needed to find a new card.)
7. Borrow from your bank or credit union, getting a secured loan using your personal assets (such as your home) as collateral.
8. Get a loan secured by business assets such as inventory, real estate, or equipment.
9. Find a co-signer for a loan if you dont have assets to use as collateral.
10. Get a bank loan backed or guaranteed by the Small Business Administration ; also see this article on SBA-backed loans from Business Week. (iContact got a credit line from Bank of America backed by the SBA.)
11. Factor your accounts receivable ; that is sell your unpaid invoices to a factor who will pay you part of what you are owed now, and more when the full amount is collected, less a fee, helping your cash to flow.
12. Structure a convertible debt deal. This Inc. article describes how a software company owner designed a deal that paid its lenders a guaranteed interest rate and then paid back the principal after 5 years if the debt had not been converted to an ownership stake in the company. (iContact raised $500,000 by issuing convertible debt through a deal with NC IDEA ).
13. Work with a venture bank such as Square 1 Bank or Silicon Valley Bank. These banks may offer a variety of funding methods and tend to work with companies that have strong potential for explosive growth and profitability. (iContact has a $1 million credit line with Square 1 Bank).
14. Issue corporate bonds. A company may structure its own deal with a stated interest rate and term length, and then sell the debt instrument to investors.
15. Find angel investors or a network of angel investors who will give you money in exchange for a equity in your business (common stock or preferred stock).
16. Raise capital from a venture capital (VC) firm. This process requires much dialogue and culminates in a term sheet or details of the agreement prepared by the VC firm and a valuation of the company, which will ultimately determine the percentage ownership the VC firm will have in your business. (iContact received $5.35 million in funds from Updata Partners .)

Ryan recommends starting the getting-money process by preparing a business plan and pro forma financial statements (projections of profit & loss statements and cash flow). The financial information gives business owners, lenders, and investors an idea of how much money is needed, what the money will be used for, the projected return, and how much risk is involved.

The amount of money needed is a key factor in deciding the approach for finding money: for example (according to a table in the book), if you’re looking for $1,000 to $25,000, then you’ll likely get a bank loan or money from friends; if you need $25,000 to $250,000, a bank loan or angel investors are the way to go; if you need $250,000 to $1 million, go to a small VC firm or a network of angel investors; for more than $1 million, see a VC firm. All of these techniques require building solid relationships over a period of time and being able to demonstrate that you know what you’re doing.

Note: I received Zero to One Million in exchange for a book review. This post focuses on one chapter, Raise Funding or Bootstrap. Ryan shares general business principles but also provides insight into what it takes to build a high-value technology company. Fairly complex ideas, such as pre-money valuations of companies seeking venture capital, are covered but the book is easy to read and written in a conversational manner.