How to You Fund a Web Startup?

inexorable · 06-21-2009, 10:42 AM

What are the best options for funding a web startup requiring under $5,000 (for advertising)? Personal credit, or a business loan? Something else? How would you approach this?

This startup is designed to scale very well, with potentially $10 million+ revenue per year after 1 year, and could stand to benefit from a $300,000 initial investment, required for the developers to work full-time for one year.

I don't know much about borrowing, but it seems with no tangible assets backing the loan, a bank would be hesitant to lend money toward a web startup's advertising costs. I also suspect that government loans like the SBA 7(a) would not apply since this is far from a traditional business model (it's online advertising), and lacks tangible assets.

Gaulkin · 06-21-2009, 04:47 PM

If this venture had 10 million dollar potential after one year then you would have no problem getting funding.

noob · 06-21-2009, 07:53 PM

Quote:

Originally Posted by Gaulkin

If this venture had 10 million dollar potential after one year then you would have no problem getting funding.

Not always true. Its not always about just potential but also the way the company is set up in its entirety and as well as current revenue at the time of raising capital or reach of the business as well as countless other factors to go over.

@OP

You're better off scaling this yourself the traditional way... boot strapping... then figuring out how to raise funds as you prove business model. No one is going to fund you the $300k you're looking for to scale this thing in one year with nothing but an idea. You're also going to have a tough time getting anyone to fork over $5k as it is.

feint · 06-21-2009, 08:35 PM

Try bootstrapping. 5K isn't much - you're just going to have to save it yourself.

JoshuaW · 06-21-2009, 10:00 PM

I suggest bootstrapping as well, that is what I've done with my Internet Broadcasting business ( TeleNetMedia.net ). It's only 5K and that is very reasonable for a start up, Good luck!

Moneymaka · 06-22-2009, 06:04 AM

What kind of website is it? Health, social network, entertainment,...?

TrafficVault · 06-22-2009, 02:22 PM

@inexorable- What size investment are you looking for- 5k for advertising or 300k for development?

If you are able to provide more details, I might be able to provide some help.

jonathanfigaro · 06-22-2009, 02:50 PM

I think bootstrapping. will put a bit of money in your pocket in order for you to have some capital!

pboychuk · 06-22-2009, 02:51 PM

I wouldn't even bother going to a bank unless you can secure the loan.
5k = bootstrap
300k = investor

genystartup · 06-22-2009, 06:57 PM

wow 10million after your first year? that's a lot of (potential) revenue. Just a quick note, most companies never make that much revenue in the first 3 years of operation. I am not saying it's not possible, but I have been in the start-up biz for 2 years and it's very hard to come by. I wish you luck and wish you achieve your goals.

As per funding, it's very hard to secure funds right now with the state of the economy. I consult for new entrepreneurs building start-ups and of all my clients, only 2 have secured angel funding and one secure Venture capital funding. It's not that their ideas are bad, it just seems like right now, VCs and angels only want to invest in a team that has experience and has successfully built a startup in the past. so take this into consideration. It's very difficult nowadays to get any funding (don't be one of those new entrepreneurs who can't separate idealism from realism)

Personally I will agree with the few posts ahead of mine. Bootstrapping is your best option. Borrow from family and friends and be cost effective. You don't have to spend thousands of dollars on adwords and marketing when you have free resources like twitter, stumbleupon e.t.c.

goodluck in your quest!

paul2145r · 06-22-2009, 10:18 PM

For anything less than $100,000, you are best off bootstrapping. Asking for a loan with no collateral is usually a guaranteed waste of time. Angel investors will wonder why you aren't creative enough to find that amount of money on your own.

If your primary initial cost is advertising, try looking into alternative means (agree with genystartup). Read some informative material on Guerrilla Marketing and other effective solutions to keep your costs low.

As far as developers, you may find one or two (or even a team) that will be willing to put in sweat equity in exchange for interest in the final profits. This will get the project off of the ground, and will give you enough to take to an Angel or VC for serious funding.

inexorable · 07-03-2009, 06:44 PM

It turns out that the developers are already putting in sweat-equity.

I just spoke with a private investor earlier this week, and we'll be speaking again next week. So, apparently this idea, and the website which is 90% of the way to release-readiness, has a lot of promise to investors.

ChrisBenjamin · 07-03-2009, 08:49 PM

Friends, family, fools.

Iamnotsatisfied · 07-03-2009, 10:39 PM

Fools indeed.

Manny4life · 07-04-2009, 03:02 AM

Quote:

Originally Posted by genystartup

wow 10million after your first year? that's a lot of (potential) revenue. Just a quick note, most companies never make that much revenue in the first 3 years of operation. I am not saying it's not possible, but I have been in the start-up biz for 2 years and it's very hard to come by. I wish you luck and wish you achieve your goals.

As per funding, it's very hard to secure funds right now with the state of the economy. I consult for new entrepreneurs building start-ups and of all my clients, only 2 have secured angel funding and one secure Venture capital funding. It's not that their ideas are bad, it just seems like right now, VCs and angels only want to invest in a team that has experience and has successfully built a startup in the past. so take this into consideration. It's very difficult nowadays to get any funding (don't be one of those new entrepreneurs who can't separate idealism from realism)

Personally I will agree with the few posts ahead of mine. Bootstrapping is your best option. Borrow from family and friends and be cost effective. You don't have to spend thousands of dollars on adwords and marketing when you have free resources like twitter, stumbleupon e.t.c.

goodluck in your quest!

I totally agree. VC's and angel investors are the wrong options for you now and they are hard to come by this days, then again you can try now or after you have established, but get the money from family and friends.