Mashable: 5 Ways to Raise Startup Funds

By: Small Business Finance Forum on 12:04 PM

This is a great article that discusses five alternatives for raising funds for your startup (hence the title). The five options are as follows: friends and family, incubator funding, preferred stock, convertible debt and venture funding. Admittedly, some of these options are more difficult than others. I personally know of a few startups which took ~ 2 years to obtain venture funding. The CEO was trying to grow the business and procure venture investment. The process can be time consuming and can cause a CEO to lose sight of the primary focus which is building a viable, sustainable, sellable (whether or not you wish to sell in the next 5 years or 50 years) business. In that case, it's best to hire a CFO or at least a part-time or interim CFO. Let the CFO lead the charge for the investment and call you in when needed. I say that because it's always best when the CEO/Founder is the primary speaker. Even if the CEO/Founder is horrible at public speaking, his or her passion comes across and can be very infectious.

Here's an excerpt from the article,5 Ways To Raise Funds for Your Startup, (Bill Clark, Mashable.com) regarding preferred shares,"Startups generally offer preferred shares when they raise money. Common stock is typically given to founders and reserved for options. The reason to offer preferred shares is that they often come with provisions like rights and liquidation preference. They are also senior to the common stock. This will make the investment more attractive and assure the investor he or she will be paid out first. After all, they are some of the first people to put up money to help your startup succeed."

 One last comment: Preferred shares will help in arranging venture funding. If you have ever been an investor in a small company and been pushed out of the decision making process (as many I know have), you will understand that having preferred shares and associated preferred voting rights is very important to angel investors. Venture capitalists, who tend to be more savvy than angel investors, insist on preferred shares.

To read the article in its entirty, go to 5 Ways to Raise Funds for Your Startup.