Take These 3 Funding Myths with a Grain of Salt

Funding your business isn’t difficult, but acting on poor advice makes the process unnecessarily challenging. Your friends and family will support your vision, but there’s no guarantee they understand what it takes to fund a business. To get funded, you need to distinguish the difference between encouragement and business advice.

Identifying encouragement vs. advice

When discussing business matters, it’s important to understand the context of your conversation. For instance, a casual conversation might lend itself to a discussion about business, but it won’t necessarily produce actionable advice.

Mentioning your search for funding to a friend is likely to elicit friendly encouragement, rather than solid business advice. This friendly encouragement might include the following statements:

• “You’ll get funded, you just have to find someone who believes in you.”
• “If you get turned down, it just means they didn’t see your vision.”
• “Stay positive and keep trying, you have a brilliant idea, people would be foolish not to fund you!”
• “You don’t need to change a thing – if investors can’t see your value, they’re not the right investors.”

The above statements aren’t necessarily false, but they are flags that indicate you’re receiving encouragement rather than advice. Knowing the difference matters because acting on encouragement alone can keep you stuck, causing you to make damaging mistakes.

Uncovering prominent funding myths

In addition to encouragement mistaken for advice, there are several funding myths to be aware of:

1. You should pursue the same loan source as others in your industry

When you’re launching a business – especially your first business – it’s tempting to pursue loan providers that funded similar businesses. In general, businesses don’t get approved for loans based on their industry or how great their product is.

Even when the loan source specializes in a particular industry, you still need to qualify.

If someone you know recommends a specific loan, it doesn’t hurt to pursue it. Before making a decision, though, be sure to compare small business loan providers, even if they don’t specialize in your industry. Each lender qualifies businesses differently, so comparing lenders will help you get the best deal.

2. All you need is a good crowd funding campaign

Crowdfunding platforms like Kickstarter make it easy for you to generate funding, but they don’t run on autopilot. This misconception leads to many failed campaigns.

Crowdfunding expert Clay Hebert knows his way around Kickstarter. As of 2013, he helped 26 entrepreneurs raise over $2 million between Kickstarter and Indiegogo.

In an interview with TheNextWeb.com, Herbert explains how and when crowdfunding supports specific types of businesses. He makes an important distinction between the various platforms; Kickstarter and Indiegogo are “rewards-based” platforms, while Fundable is “equity-based.”

What platform you choose and how you structure your rewards matters.

“The biggest mistake,” Herbert explains, “is thinking that the marketing will take care of itself. The press loves to cover the huge multi-million dollar projects, so Joe or Jane Doe assumes they can easily throw up a project and the platform alone will raise them $30k or $50k.”

3. If an investor wants to change your project, you should move on

An investor’s primary aim is to make money and that’s how they’ll see your business. If they see something out of place, they’re going to point it out.

Your business is your creation; you don’t need to cater to anyone else’s preferences just to get funded. However, when investors point things out that need to change, it’s wise to accept their feedback and at least consider it.

Investors who want you to change something aren’t expressing personal preferences. They’re sharing expertise they’ve acquired over many years; the more experienced investors know what causes businesses to fail; if they see any telltale signs, they’re going to let you know.

It’s not always about your business plan numbers

Sometimes it’s not your ROI projections that put off investors. For example, many restaurants fail within their first year due to lack of planning, and investors know how to spot the signs. If you’re late to the meeting, reschedule, cancel, or can’t answer their questions, they’ll know you haven’t done enough planning.

Cutting ties with every investor who asks you to change something about your business before they’ll consider funding you isn’t wise. Sooner or later, you’ll realize there was merit to what they asked you to do.

That doesn’t mean you should take everything an investor says as absolute truth. Stay open to the possibility that their request has merit. Remember that they’re in it for the money. Their suggestions serve to make you more profitable because that’s what secures their ROI.

Author: Jenna Cyprus is a freelance writer from Renton, WA who regularly covers tech, business, marketing, and social media. Follow her on Twitter.