How to Figure Out Your Startup's Best Bets for Funding

NEW YORK (TheStreet) -- Getting a business off the ground is never easy, but often one of the first hurdles -- securing funding -- is the most difficult. Knowing which route to take can seem daunting. Should you opt for angel investors? Crowdfunding? What about money from mom and dad? There's no one-size-fits-all answer because every startup is different. We checked in with the experts to find out which route is best for your business.

Friends and family:

"A lot of our clients want their children to succeed, and it's just par for the course that they're going to help their kids get a business off the ground when the need arises," says Deb Doran, managing director at CTC Consulting and Harris myCFO in Seattle. "But when the children take that money, they have to communicate exactly what they want out of the arrangement."

Every family member and every friend will have different expectations when they invest in your business, and it's up to you to tell them what you want. Is this a loan? Is this a gift? Do you want your friend or family member to be a partner in the business?

"You're going to be sitting around the Thanksgiving dinner table with these people, and if you aren't clear about what everyone wants from the situation up front there's going to be tension," Doran explains.

For example, if your father wants to invest in your business, he may assume that when he does, he will become a full partner and will expect to be treated as your "right hand man," she says.

"You may need to step in and tell your family that you want to do this on your own, that you are treating them as you would any other investor," she says. "No matter what, you don't just want a handshake agreement. You need all the formalities in place."

With that said, don't take those long-term family and friend relationships for granted -- they can be the reason your company succeeds or fails, says Raad Mobrem, CEO of tech startup Lettuce.

"The people you know and the people who know you are important," Mobrem says. "They are more interested in your vision and who you are than in making money, and that is an incredible advantage to have."


Crowdfunding can be a great way to validate your business model, explains Eugene Borukhovich, a serial entrepreneur and founder of Q!, a social search app.

"If you can get thousands of people to give $20 to your business and validate what you're doing, then that may be what gets you to your goal, or it may mean that your business will be taken seriously enough to attract angel investors," Borukhovich says. "If your crowdfunding takes off, it showcases there is market viability and you are de-risking the next level of investment."

When you talk to angel investors and you can showcase a successful Kickstarter campaign, it tells them a lot, Borukhovich says.

"It shows them that you aren't just two guys in a garage," he says. "It shows you have the community behind you and you have a story to tell. In that way, Kickstarter can be almost more of a marketing tool to get word out about your product."

Crowdfunding is also ideal for people looking to get to the next level of business, Doran says.

"Perhaps you already have a product, but you need to buy a piece of equipment to really expand your company. Crowdfunding can be the vehicle for that," she says.

Keep in mind that crowdfunding is best for tangible products.

"If you are developing some back-end platform, it's not the right thing for Kickstarter. If it's software, or something not consumer-facing, then it's very hard for people to get passionate about it," Borukhovich says. "Creative products are the sweet spot with crowdfunding."

Angel Investors:

Most angel investors have been in your shoes -- they were successful entrepreneurs themselves and they want to see you succeed, Mobrem says. Many times, angel investors aren't looking for your company to become worth $1 billion, but they do want to see a decent return on their investment.

"You explain your vision and tell them your story and hopefully they have experience in your field and can be convinced to believe in you," Mobrem says.

Typically angel investors will contribute anywhere from $10,000 to $25,000 in your business, but it can exceed $1 million, he explains. Angel investors will always want equity in your company, though, whereas investments from family members and crowdfunding won't always require the sale of shares.

Also, even though angel investors typically finance a lot, they will also want to see more in terms of analysis on your company, Doran stresses. Mom and dad may not require an efficacious business plan, but they probably can't give you $25,000 either.

"Angel investors are wanting to see a lot more in terms of analysis," Doran says. "There is a lot more due diligence going on today than there was 10 years ago, but when they find an idea they like, they're willing to do anything to help it succeed."

More from Personal Finance

Top 7 Facebook Scams to Watch Out for in 2018

Top 7 Facebook Scams to Watch Out for in 2018

What Is an EBITDA Margin? Examples and How to Calculate

What Is an EBITDA Margin? Examples and How to Calculate

How to Buy a Car in 10 Steps With Tips For 2018

How to Buy a Car in 10 Steps With Tips For 2018

How to Really Diversify Your Retirement Portfolio

How to Really Diversify Your Retirement Portfolio

30 Cities to Visit That Are Really, Really Clean

30 Cities to Visit That Are Really, Really Clean