How do you raise money to start a business?

Capitalizing a new business is a real challenge. However, with advance planning, the challenge may be somewhat eased.

The first step in raising capital is to have solid and honest documentation that complies with the securities laws. The documents you need include a business plan, an offering document (such as a PPM), and investor questionnaire and a subscription agreement (the legal document for accepting capital).

In reality, if one is a 'founder' of a company, or there are many 'founders,' one can usually 'get by' with just the business plan. The founders contribute their own capital and achieve some 'skin in the game.'

If more capital is needed, usually the entrepreneur will approach friends and family. Legally, you'll need the documents outlined above; however, in practical terms, usually an expanded business plan ... one that includes risk factors ... and a form of subscription agreement, will suffice.

After the friends and family, one will work with angel investors. In this situation, the entrepreneur must have a fully compliant set of funding documents.

Beyond the angel investor is the venture capitalist. Again, a fully compliant set of funding documents is required.