Getting your hardware start-up off the ground requires money and getting those funds in the door is often the first call of duty for the budding hardware engineer. Money is the great enabler, and without funding very few businesses have a chance of getting off the ground. But if you aren’t already a proven businessman with a track record, or if your last name isn’t Gates, how do you go about getting someone to believe in your dream too so that you can make it a reality?
Fortunately, there are many different methods available to you if you do need the money and many of these investment options are things that anyone has access too. So stop dreaming and start doing!
Your Options for Funding a New Business
Bootstrapping is perhaps the safest and most rewarding way to get funding for your business. Essentially this means funding your business yourself by gradually building up to your vision. This is often best done in hardware by finding ways to create cash flow early on, in small amounts that can then be leveraged to grow the numbers slowly. To effectively bootstrap your business to success, you should have a solid understanding of the necessary expenses and potential profit centers of your business and be willing to work hard to save all the money you can.
Another DIY way to get funding for your business is to use your own cash. Save up over a period of several months or years, then quit your job and hope for the best!
Personal credit means getting a loan on credit – such as a credit card loan. This is quick cash but limited and you risk damaging your credit rating if you can’t meet the repayment schedule.
Friends and Family:
Friends and family are often the first people entrepreneurs turn to raise money outside of their own accounts. Many huge companies were started this way including Eastman Kodak and Microsoft. In many cases, your friends and family will be eager to help you make your dream a reality – but just make sure you draw up clear terms to avoid a falling out. Mixing friends and business can be tricky, so make sure you know what you’re doing. Make sure you write a contract that clearly explains what you are giving in return for the loan, including the timelines of when the money will be paid back and what happens if it isn’t paid back in the allotted time. This will make your friends/family more comfortable and will help easily resolve any questions of fairness that might come up in more tenuous situations.
If your idea is artistic, or in some way philanthropic, or if you are someone who can demonstrate they are worth investing in for the government, then you may be able to get a grant to start your business. It means getting the money instantly without having to pay it back. A shame all funding can’t be like that! Others that can look into grants are businesses whose product will provide a positive impact in some way or if you are a woman or minority owned business.
Bank Loans and Lines of Credit:
If you have good credit, a bank loan or line of credit through your bank can be a good option. A line of credit is basically just a bank loan that only accrues interest on the money that is being used. I’m a big fan of lines of credit as you get competitive rates similar to a bank loan, but with the flexibility of only having to pay the interest on the money used, like a credit card. With any bank loan or line of credit, make sure you read the fine print, particularly know if/how the rates can change, if there are any annual fees, or other associated fees like for appraisal.
These days, crowdfunding is a great way to get funding for almost any idea you can come up with. If you can demonstrate why your project is exciting and valuable, then you can get regular members of the public to chip in with their support and this will often be enough to get you off the ground, while also giving you a lot of free exposure and market validation. Check out our Crowdfunding 101 in our Hardware Community to dig deeper on this cool new trend.
Getting what the industry calls “institutional” investors can be difficult and costly, but it can also be an essential ingredient to starting and growing your hardware business. Typically ‘angel investors’ will enter into discussions with you after you have market validation which can be derived from sales and/or a highly successful crowdfunding campaign. Venture capitalists will usually only want to talk to hardware start-ups once they’re ready to scale and have proven themselves and their model.