Recently I attended an iBreakfast event in New York City. The featured speaker was Roger Aguinaldo, an M&A expert from M&A Advisors. Roger posed a question to the audience regarding the best sources of capital for a startup.
People shouted out their answers. Venture capitalists. Friends and Family. Angel investors. Banks. Etc. Etc.
While Roger wrote all of these answers on the board, he said that each of these answers weren't in his top three places to get initial investments.
The crowd stalled for a minute, as everyone tried to stretch their minds from the traditional answers. Slowly but surely, Roger's top three sources of initial investment hit the board. They were as follows:
3. Competitors/strategic investors
It is important to note that these three sources don't work in all situations. For instance, if you are opening up a wine shop and you know a wealthy individual who purchases a lot of wine, they may be a relevant investor. Likewise, the wine distributor from which you plan to purchase hundreds of thousands of dollars worth of wine over the next year might be interested.
Conversely, the wine shop across town surely will not invest in you. Likewise, if you are launching a company targeting teens, your customers aren't going to have the ability to invest in you. Or if your venture exploits weaknesses of other companies in your sector, looking for competitors/strategic investors may tip everyone else off regarding what you are doing.
However, in many instances, at least one of these sources might be relevant for companies seeking capital. In addition, these sources of capital may help in referring other investors and/or be able to provide additional capital in the future should it be needed.
Since capital is the fuel that new ventures need to grow, the entrepreneurs that run them must always think creatively about financing, and never miss out on good potential capital sources.