Over the past year several areas of potential financing for entrepreneurs have experienced dramatic changes, while others will still invest at nearly the same terms as in the past.  A broad overview of what has been seen in the market includes:

Friends and Family Money:

Friends and family money (along with capitol from the founder(s)) is often the first source of funds which a entrepreneurial business can obtain.  Individuals who know you, will often invest in not only the idea of your business, but also in their confidence in your abilities.  Depending on who you know often is the largest determinant in how much you can raise via friends and family, those with well-off parents or a rich uncle, etc... will have a better of chance of success.  Friends and family money can often be used to finance the launch of your business through its creation and the initial development of your product until you seek another stage of financing.

Angels:

Angel investments is what most entrepreneurs think of when they first seek outside funding for their business.  An Angel is an individual who has significant funds or earning potential (other successful entrepreneurs, doctors, lawyers, etc...) who is seeking out potential high return investments.  Angels will often invest between $10,000 to in excess of a $100,000 in a business, often seeking an equity stake in return for their investment.

Angel Funds:

Angel Funds are a blend between individual angel investors and the more traditional VC investors.  An Angel Fund is usually comprised of a group of individual investors who pool their money to make a number of individual investments.  An example might be 50 individual angels each contribute $100,000 to make an overall fund of $5,000,000.  This overall fund will then make a number of individual investments, allowing the individual angels to diversify their risk.  A typical angel fund will have a submission process, often via the internet, where you can submit your business plan or overview documents.  If selected for the next step, you would present your overall business plan to the members of the fund, where afterwards they will vote to proceed or not.  If the fund has voted to proceed, they will often select a small group of members to negotiate the details with the entrepreneur.  Angel funds will typically invest between $100,000 and $1,000,000 in a company (often in multiple tranches), taking an equity position in the Company and will often require board representation.

The toughest part for most entrepreneurs when dealing with an angel fund is the group presentation.  This is often a half hour presentation to most if not all of the members of the group and like any group presentation runs into several hurdles, including, a large part of the group not paying attention (especially if the Company is in a space that they don’t have a background in), and a few of the members monopolizing the presentation with questions which may (or may not) be relevant to the business.  A large number of entrepreneurs who have gone through the process will rarely describe it as successful (and a number of entrepreneurs outright despise the process).

Venture Capital:

A venture capital fund is what many people think of when they are looking for outside capital to grow their business.  A typical VC fund will be a professionally managed fund, that has a small number of partners and junior level individuals (often less than ten in total) who manages a pool of money raised from individual investors and institutional money (pension funds and endowments).  The total fund size will range from as little as $10 million to in excess of $500 million, and each VC group may have multiple funds under management. VC funds will often invest between $250,000 and $5 million in a company (in multiple tranches), taking a senior equity position (often preferred shares) and will require a board seat.  An entrepreneur can submit their business for investment consideration via the internet, but a higher level of success is often experienced through either contacting VCs the entrepreneur has a relationship with (often from a prior successful venture) or using third party advisors who have relationships with a large number of funds.

Banks:

Banks can be an excellent source of capital for your company, depending on what it is to be used for.  If you are trying to obtain capital for starting your business or to fund it prior to positive cash flow, you will most likely need to either use a personal line of credit or borrow against personal assets (i.e. a home equity loan).  The best time to look to a bank is when your business has an asset to borrow against.  This can include financing current assets (either receivables or inventory), financing for the acquisition of equipment, or the business itself has a track record of generating cash, and the bank can feel comfortable that the business will generate enough in the future to pay back the loan.

Government Grants:

Government grants fall into two general categories; development and scientific research. 

If your Company is in an area of the Country which either the federal, state or local government is looking to encourage growth in - you may qualify for a grant for start up funds or low interest loans.  These grants are often for companies in either rural areas or areas which the government would like to encourage redevelopment of a depressed area (parts of inner cities).  Another source of development funding to explore is for minority or woman owned businesses.  Keep in mind that there may not be true grant or seed money always available for a minority or woman owned business, but there is often a preference in government contracts, which can provide a nice initial revenue stream for your business.

The second area of government research grants a start up should examine are scientific grants (especially SBIR / STIR grants).  These grants can often be used to cover part or all of the cost of research and development of a program or technology that the government would like to encourage.  These grants can be especially helpful if your Company focuses on healthcare or technology.