Financing a Not-Yet-a-Business Idea

It's next to impossible to raise funds for your "brilliant idea." But our expert offers some smart financing tips.

By Asheesh Advani
July 10, 2006


The truth of the matter is, ideas don't get funded; businesses get funded. That became the mantra of the professional investor community after the dotcom bust of the late 90s. However, for most entrepreneurs, getting from the idea stage to the business stage requires capital, and it has to come from somewhere. The following tips will help you use your funds wisely as you move from bright idea to booming business.

1. Create a budget. Budgets are like oil spills: They expand to fit the space they're allotted. That's why I recommend creating a budget before you raise any money. You may find that the total amount of funding you need is more than you initially thought. And when you raise money, your budget will help you make intelligent trade-offs. When I started my business, I decided to hire a web designer as a part-time consultant rather than a full-time employee because I needed to spend money on market research first.

2. Focus on the critical elements, not the fun stuff. Entrepreneurs are typically passionate and creative people, but the task of building an early-stage business involves some fairly mundane tasks. For instance, when deciding whether to spend money on designing a logo or doing market research, avoid the temptation to hire a logo designer rather than investing in surveying potential customers. Don't get me wrong: You'll need a logo and a business name to get funding for your enterprise, but market research is more important at the idea stage. And when you speak to members of your target market, you may also discover that the name, logo and business concept you initially considered is off base.

3. Brainstorm a list of supporters. People love to support new business ventures started by people they know. And even if your friends and relatives don't have the financial means to loan you money, they'll want to help you succeed and transform your idea into a business--but you have to ask them first. I know many entrepreneurs who are reticent to ask for help from relatives and friends. Get over it! If you're going to succeed, you'll need to become an expert at asking for help.

4. Refine your kitchen table pitch. In previous columns, I've described how the "kitchen table pitch" is a modified version of the famous "elevator pitch" for entrepreneurs raising money from relatives and friends rather than from professional investors. Read my earlier column to get specific suggestions about how to get financing for your idea by refining your kitchen table pitch.

5. If you can, get resources from a former employer. If you haven't burned bridges with your former employers, consider approaching them about your idea and asking for their support. You might get free or discounted office space--and possibly financial resources for your new enterprise.

6. Don't issue founder's stock until you're ready. There's a lot of misinformation out there about the timing involved with issuing stock to the founders of a business. Some "legal experts" will tell you to do it as early as possible--even before you're certain that your idea will actually become a business. This thinking was developed during the late 1990s when businesses were getting funded very early in the idea life cycle. And even though some investors continue to fund idea-stage businesses, this isn't a sufficient reason for you to rush to spend money on legal fees and issue stock before you know that you'll be devoting your full efforts to the enterprise.