Raising Startup Capital From Investors – Information Resources
Starting a business requires money, often a lot of it. Unless you
have the resources yourself or can convince Grandma to give you a
generous gift, you will be looking for outside sources of capital.
You have the option of borrowing money or selling part of your
business to investors. If you decide to go after investors, you must
know that the sale of business interests ("securities" in legal lingo)
is heavily regulated by federal and state laws and can get you into
serious legal trouble if not done correctly.
For an excellent introduction to the laws regulating the sale of
securities by small businesses, I recommend this online guide by the
Securities and Exchange Commission:
Q&A: Small Business and the SEC-A guide to help you understand how to raise capital and comply with the federal securities laws.
Since venture capital is out of the question for many small
businesses, the first line of investors are often friends, family or
wealthy individuals (business angels). For a very easy to read
introduction into the world of raising money, I recommend the book
(hardcover or e-book available), Investors in your Backyard: How to raise money from the people you know by Asheesh Advani. You could also read one of Asheesh’s many articles on the topic on entrepreneur.com.
Finally, once you get more familiar with the subject of raising
startup capital, the process involved and the legal documents
necessary, you or your lawyer may want to consult model venture capital
developed by the National Venture Capital Association. These documents
come complete with explanations and are developed by leading venture
capital attorneys in the country. As I mentioned, venture capital may
not be in the future for many small businesses; however, the terms and
structures found in these documents are often repeated in smaller transactions.