Our web feature isn't going to be an instructional or advice page, but we'll investigate the greatest challenges our young Aussie entrepreneurs faced as well as how they overcame them. These investigations will culminate in a page on entrepreneurial pitfalls and possible solutions.
So far, we've identified four major roadblocks to building an online business: lack of start-up capital, lack of technical skills (to program apps etc), lack of business acumen and a lack of connections.
This blog post will summarise our research to date on the first, and most daunting roadblock - a lack of start-up capital.
Young entrepreneur Abraham Choe's greatest challenge in starting his university merchandise business was accessing "money to make money". And he needed a lot of it - to purchase licenses to reproduce university trademarks, to promote and to distribute - which he managed thanks to investments from family and friends.
Abraham Choe from the University of Oregon. Pic from youngentrepreneur.com
But we can't all fall back on "kitchen table"pitches and scores of wealthy relatives to lend a hand. The solution is to be creative and proactive in the search for funding.
Conventional ways of securing start-up capital include:
- Finance from personal networks.
- Low-interest loans from start-up networks like ENYA (Entrepreneurs Network for Young Australians) which partners with NAB to provide loans from $500 to $20 000.
- Australian Government Business loans - up to $1 million, contingent on a high-quality application. Read more about it at BGA and on the Australian Industry website.
- Conventional bank loans - these can be difficult to attain for young entrepreneurs who haven't built up a good credit history and can't use home equity to secure the loan.
- Angel investors - wealthy individual business people who invest capital in start-up companies. Check out the Australian Association of Angel Investors, Business Angels Australia and the Australian Investment Network.
- Venture capitalists - companies who invest managed funds in start-ups. See Wholesale Investor and CVC.
- Apply for government grants and enter competitions. Check out Community Builders and BGA.
Asheesh Advani, founder of Circle Lending and Virgin Money USA, also offers this cool tip: instead of restricting financing pitches to close family and friends, young entrepreneurs should expand their view of their "networks" and think creatively about who could help (read story here). Write up a fantastic proposal and pitch it to business people and professionals you regularly come into contact with. Consider university contacts, friends' parents and parents' friends. Atlantic Records, for instance, famously scored a start-up loan from the family dentist.
Whichever way young entrepreneurs decide to pursue funding, Advani recommends chasing finance in multiple rounds rather than in one single capital raise, in order to minimise risk in the eyes of investors, and maximise the chance of getting your business off the ground!
Get involved with entrepreneurial networks like Vibewire, which will build your contacts (therefore providing more options in terms of potential investors) and help you to refine business plans and objectives. These need to be professional and inspiring to appeal to risk-averse investors.
Finally, to appease investors, young entrepreneurs may need to make significant compromises on their ideas or business plan. Investors are experienced business people and generally know what they're talking about - plus they have the money! Within reason, flexibility is key.
For some more great advice on how young entrepreneurs can secure funding, check out this interview with Scott Gerber, serial entrepreneur, angel investor and founder of Young Entrepreneur Council in the United States. He knows his stuff.
That's an exhaustive list of places to get funding. Thanks!
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