‘There has never been a better time to raise money’

There's one ingredient that every startup and small business needs almost without exception: capital. But getting access to the funding you need, whether to make sure your new venture sees the light of day or to fuel next-stage growth, can be tough.

"Fundraising is a bloody nightmare," said Sarah Prevette, founder of Future Design School and Sprouter, an online community providing real-time advice to startups.

"It's a giant distraction when you're running your business … It's exhausting, figuring out who to go to," she told an audience of several hundred entrepreneurs gathered in Toronto on May 9 at The Globe and Mail's Small Business Summit panel on raising money. "Hearing 'No' a million times takes a certain degree of resiliency," she said.

But being turned down by funders doesn't have to mean the end of the road – as long as you are willing to be creative in pursuit of cash.

"There has never been a better time to raise [money] in this country than now," said Ms. Prevette, who cautioned entrepreneurs against leaning too heavily on banks in the early days of their business. "Quite frankly the bank really isn't your friend until your business is at a different level. For your first round of funding … your bank shouldn't be your first call."

She said banks are more willing to lend when you have an established revenue stream and startup risks are reduced. Better bets, Ms. Prevette said, are tools such as early-stage accelerators, which are common in tech. They typically provide a range of supports, from funding to access to expertise and even workspace. Early-stage angels provide seed capital in exchange for an equity position or a convertible debt instrument.

There are also government grants aplenty, Ms. Prevette said, for those willing to do the paperwork. And you should be if you're looking for funding, she said.

"You should be taking advantage of every single grant – whatever you can get your hands on," she said. "You should be able to get at least $50,000 and probably up to that quarter-million mark just through the programs available here in the city."

Dan Kelly, president of the Canadian Federation of Independent Business, says regular surveys of the organization's members show that credit unions are top-rated lenders for small businesses.

"If a bank says no to you, that's not the end of the road," he said.

Both Mr. Kelly and Ms. Prevette said it is valuable for entrepreneurs to earn some revenue in the early stages even if it isn't from an end-goal product. Proving you can do that, Ms. Prevette said, will give prospective lenders confidence.

"What can you do now to actually start to develop some line of revenue that isn't that beautiful product that you have in your head? Maybe it's a service or something that you can build around before you can get to a product," she said.

That's exactly what Allen Lau, founder of the storytelling app Wattpad, did when his early-stage growth was slow. While he didn't need a lot of capital in the startup phase, he knew that eventually he would need tens of millions of dollars to scale quickly. In the early days, he focused on boosting his users to a credible number. While he watched that number climb, he said, he cobbled together consulting and other side jobs to fund his operation.

"Bootstrapping was the right idea at the time," he said, adding, "The idea wasn't proven. It took us a couple of years before we figured it out."

Once they did, though, Mr. Lau and his team were able to raise more than $60-million in funding.

It's a big number, but Mr. Lau understood how much he actually needed to get off the ground. If you're having trouble getting funding, the CFIB's Mr. Kelly suggests looking at your original plan and seeing where you can reduce needs by swapping out expensive equipment or other high-cost line items.

"Sometimes there is an overestimation of what you might need," he said, adding, "And you actually need less than you think."

Before Andrew Zakharia started his own accounting practice, AZ Accounting Firm, he secured a line of credit and several credit cards while he was still a full-time employee. "I knew that once I became an entrepreneur there would be probably a two-year freeze on my ability to borrow at reasonable rates from banks," he said. "So be proactive and, if you can, think before you take that next step."

Mr. Zakharia suggests that businesses with access to credit should use it, borrowing money on a company line of credit, for example. Borrowing often – and paying back the debt on time – will help build credibility. It also means the line of credit is in place before a dire need for cash arises.

Another of Mr. Zakharia's tips: Instead of hiring staff on salary, offer to pay them in company shares that will pay out down the road. This approach will help safeguard your cash flow while you grow.

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