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In 2005, I started a consulting business helping small businesses manage their mobile devices. Though the company was profitable, the revenue stream wasn't enough for me to qualify for bank funding. I realized if I continue to self-fund the company without outside investment, it'd take me 10 to even 15 years to get to the point I'd like to be.
Through a wonderful organization called CEO Space (ceospace.biz,) I enhanced my business vision and realized I could create software to manage both my customers' mobile devices AND cost. Plus, with the software, I could cater to larger businesses. I learned that raising outside capital would allow me to grow the company a lot faster. I hired a lawyer to become Reg D 504 compliant, and structured my capital funding into several rounds. My first round was for family and friends. This round was the most lucrative with limited number of units. My thinking was that if things do go wrong (nothing is guarantee,) I'd find a way to pay my friends and family back. The 2nd round was for individual angels, which I raised through CEO Space forums. Now I am approaching organized Angel groups and VCs that fund seed-round stage companies.
Factoring is a much cheaper way to get funding, even at a higher interest rate, because you don't give up equity of your company. However, unless you have existing A/R, you can't get factoring funding.
It is important to consider all of the financing options provided in this article. (There is another option called hedge fund.) I originally was against the idea of getting outside funding, let alone asking friends and family. I've changed my mind 6 months ago, and now I've raised my seed round capital. So don't rule anything out until you've talked to people who have done it different ways.
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