Any kid who ever ran a lemonade stand knows it takes money to make money.
The grownup version of this maxim goes more like this: Entrepreneurs launching a small business need capital to get off the ground. Loans are tougher to get these days, so pitching your startup idea as an investment opportunity might be an option.
Your Money spoke with three New Yorkers to find out how they raised as much as $9 million from investors.
Sharon Joseph, Harlem Lanes
HER BACKGROUND was private banking, but Sharon Joseph thought the recreational activity that captured the nation decades ago might be ripe for a revival.
With a partner, they established the nations first bowling alley built and owned by black women. When it opened in 2006, the facility was Harlems first bowling alley in 30 years.
We went to raise $3 million to start, but it went up closer to $5 million, said Joseph, CEO of Harlem Lanes. She approached wealthy individuals by calling and asking if they knew anyone whod be interested in this type of investment.
She also did library research to identify private investors. In almost two years, she raised $3 million. Each investor signed legal documents, which Joseph said is especially important with family and friends.
Joseph, 38, focused on what she called smart money meaning money from investors who not only had cash, but specialized knowledge they could tap.
One of them had a construction company, she said. Another had a restaurant background. We leveraged their business expertise to help our business grow.
Joseph had a plan and plenty of tenacity, but a successful launch also requires good timing, and the recession has been tough on most businesses.
We are still open, Joseph noted. We continue to be optimistic that business will pick up.
Kelly Fiore Charityfolks.com
Several years before the stunning collapse of Lehman Brothers, Kelly Fiore walked away from her job as a Wall Street analyst, convinced she had an idea worth gambling on.
Fiore, 31, of Tribeca, created Charityfolks, an online auction for nonprofits that focuses on celebrity-driven experiences. She launched the business by raising $100,000 from friends, colleagues and business contacts.
I had a business plan, and explained how it would be used to get the company off the ground, Fiore said. I talked about the market, the concept and why I thought it would be a successful startup.
After her business survived to its first birthday, she embarked on a new round of financing, which took a year and generated $2.2 million.
She found that private investors who understood her vision were a better fit than venture capitalists who usually want to call some of the shots.
Our affluent, successful investors had networks, business acumen, experience and spirit, she said.
Then we had another round with a strategic partner, a music company that invested $1 million and got a small ownership piece in exchange, she said.
Her investors confidence has been borne out despite the economic downturn.
Consumer spending is affecting all businesses, but we still find that consumers are visiting the site and participating in the auction, Fiore said. Charity is still in style, even in difficult times.
Steve Luttmann Leblon Cachaca
the next tequilla thats what Steve Luttmann figured hed found after he tasted the Brazilian liqueur cachaca.
It was already the national spirit of Brazil and one of the worlds top-selling liqueurs. Luttmann, 43, of the Upper West Side, wanted to be the one to introduce it to the U.S.
Its the key ingredient in the caipirinha, he said. It tastes like a margarita but is made like a mojito.
His plan back in 2005 was to recruit 20 brand ambassadors to carry out a campaign of educating bartenders, liquor stores, the general public and distributors about the product and its origin. That required classes teaching Portuguese phrases and product knowledge.
Luttmann set out to raise $3 million through friends and family.
We put together a 30-page book, developed presentations, invited friends and invited them to invite people in their network, he said. We broke it into increments of $50,000 and told them, This will buy you this many shares and this much value in the company that exists now.
We showed them our business plan and told them that we believed cachaça to be the next tequila.
For his next phase, Luttmann sought to raise another $6 million from another layer of investors, people he didnt know as well.
Over two years, he talked to a lot of people and held countless meetings.
Some invested right away, he said. Others took a long time, until they saw proof that the concept was right or that we were pretty good, that we were showing sales.