Entrepreneurs find ways to finance their dreams by cutting personal expenses. By launching a business through the start up phase with personal funds, they are better qualified to attract angel investors for expansion capital.
Ask people who achieved sustained entrepreneurial success and you’ll find stories of sacrifice. That’s because individuals who believe in their companies are committed with their own money. They make small sacrifices today in exchange for the greater gain of future riches. Most importantly, this commitment is what attracts angel investors.
The best angel investors achieved self-made wealth. They are not impressed by a flashy car and large home. They don’t want their investment money used for four-star hotels and first class airfare. Angel investors want to fund your company because they believe you will treat money like they did with their own ventures.
Angel investors know that a good idea will not succeed without the commitment of management—usually one visionary individual. The best way to show your own commitment is having made a financial investment in yourself.
Discussions with angel investors begin by explaining your company’s situation. There’s no more appealing way to describe your business than pointing to progress you’ve already achieved with your money. This illustrates how investment in your company attains results. Even better, it demonstrates your personal confidence in the business.
Where do entrepreneurs find the funds for investing in their own companies? When you ask around you’ll find that they do things like converting to a one-car household. They sell a newer model vehicle with a high payment. They drive an older model used car having lower loan payments. They take a second mortgage or home equity line of credit. Even in tight lending markets, you can usually borrow up to 80 percent of your home’s value. That means you can likely borrow $100,000 if your home is worth $500,000 and the balance of your current mortgage is only $300,000.
Starting your own company involves weighing the benefits of future success against the current costs. A commitment to your company is often worth cashing in a retirement account despite having to pay taxes and an early withdrawal penalty. If expected gains are large enough to reward an angel investor, the reward is also sufficient for your capital investment.