The 4 stages for a business to raise funds

I read recently that entrepreneurs and small business owners feel their biggest challenge is raising money and finding the funds necessary to grow their businesses.

I'm an entrepreneur, angel investor and venture capitalist. In these roles I've learned and experienced the highs and lows of looking for money to grow my own businesses. I also understand what investors are looking for before committing to giving businesses money.

These two roles have enabled me to develop some simple tips to help guide entrepreneurs through the fund raising process. To begin, please note that there are several sources for money. In most cases it's best to match the right source of money with the current stage of the business. These stages include the following:

Boostrapping: In the idea/experimental stage, I advise people to use their own financial resources, such as money from a savings account or careful use of personal credit cards. Wise deployment of these precious dollars is critical.

Friends and Family: As the business grows it might need money for limited inventory or further development of the product. In this stage an entrepreneur should consider inviting family and friends to invest in the company with the understanding that their money may not be returned. This may complicate family gatherings, but in most cases, these friends and family are investing in you, not your business. You should enter an investment opportunity like this, thinking of funding, as a grant with no strings attached. If the enterprise succeeds I recommend a handsome reward for your friends and family for rolling the dice with you.

Angel Investors: As the business reaches the next level of growth and it appears that steady revenues are on the horizon, this is usually a good time to approach sophisticated "angel" investors for funding. Most communities have angel groups that regularly consider companies looking for money. These groups can be found on the Internet where the home page describes their purpose and objectives. These groups will do their due diligence and if your business meets their requirements, they'll schedule a meeting to gather more data. If the group decides to move forward with a business, investments can range from $50,000 to $500,000. At this stage of the business, angels become very real and serious investors and owners with high expectations looking for solid results.