The reality is that most companies go through a basic evolution in both the state of the company and the availability of capital. As the company transforms from an idea to an operational business, the check sizes and deal terms become much more attractive.
In the early stages where you probably are now, the number of options available to you may be a little more limited. Here are the four typical stages of a startup company and the capital that tends to be available:
Capital Types: Credit, Savings, Friends and Family
From the point at which you wake up at three in the morning with a brilliant idea to the point where you're building something meaningful, the idea stage is where all your thoughts start to form the foundation of a company.
At this point you're starting to put together what will eventually be your business plan. You're spending time on a whiteboard or doing research on the Web trying to figure out whether your idea has merit.
This isn't a capital intensive part of the process and therefore shouldn't require much cash.
This is usually the stage where you're moonlighting to pay the bills and using your savings to cover small expenses.
Sometimes you may need to invest a small amount doing research, travel or some prototyping. This is usually the stage where you're moonlighting to pay the bills and using your savings to cover small expenses. It's probably a little too soon to be looking for capital because you're basically just funding early research.
Capital Types: Small Business Loans, Angel Investors
Revenue: Less than $500,000
So you've figured out what you want to bring to market and you're ready to start building a company. Now you're on to incorporating the business, setting up your office, and getting ready to make your product available to customers.
This is the most popular stage at which entrepreneurs raise capital because the costs start becoming significant and few entrepreneurs have enough capital saved up to do this alone.
There are quite a few capital sources that specialize in this stage of starting a company, from SBA Bank Loans to private Angel Investors. You'll want to tap these sources for your first $25,000 - $500,000 worth of capital to get the business launched.
What you'll be selling to funding sources at this stage is still the potential of the idea, not the actual performance, since it's likely very early in the evolution of the company. Investors will be investing in the idea and in you personally, more than anything.
Capital Types: Lines of Credit, Factoring, Venture Capital
Revenue: Over $500,000