The Startup Checklist

19Understand the Funding Process and What Investors Want to See

Some very small businesses—particularly those that offer the professional or personal services of a single individual—can be launched and grown with little other than human time and talent. But most businesses require some money before they can be started—to pay for software, buy tools or equipment, lease office space, or pay for the time worked by employees or outside contractors. Since most entrepreneurs are not independently wealthy, and since, as we saw in Chapter 13, banks won't lend money to startups, it is often necessary to raise funds by exchanging an ownership interest (equity) for money. The people who are willing to make that exchange are investors, and their interests, motivations, and capabilities cover a wide range, both in the amount of money they can provide and the stage your company needs to have reached before they invest.

How Much Money Can I Raise, and from Whom?

The amount of money you can raise from a particular investor varies depending upon whether you're talking about a family friend, an individual angel investor, an organized angel group, or a professional venture capital fund (VC). To scale things, the average individual investment in a given company by business angels who regularly invest in early stage ventures in the United States is roughly $25,000. Outside of major tech centers, you might find individuals participating in the $5K–$10K range, although there are high-net worth individuals ...