Coming up with a great idea for a business is hard enough as it is, but turning that idea into a profitable business is even harder. How many people can say they’ve got money to burn on launching a startup?

Unless you’ve received some inheritance or have already made a few million, you’re going to have to ask someone else to lend you the money to launch and grow your business.

Who and who not to ask

It’s not just a question of who you should ask, but also, who you shouldn’t ask. There are at least three options to consider, but each come with their own pros and cons.

Friends and family

They might lend you the money, but can you risk the fallout if things don’t go to plan? Blood feuds are probably best avoided, or left to the Mafia.

The banks

A high street bank might lend you the money if you put down collateral, such as your house. But are you willing to risk losing your home if things don’t go to plan?

Angels and Venture Capitalists (VCs)

Another option is pitching to angel investors and venture capitalists. They too will want something in exchange for their investment, but it won’t be your house and isn’t likely to ruin a friendship or fracture a family.

Clouding the issue

Choosing a source of funding was perhaps made more difficult in some respects for George Davis, the teenage CEO of The SenLab Group, because of his age. Would anyone would take him seriously, let alone his idea? There was only one way to find out.

But the more he pitched, the more he learned and the better he got. Eventually, age wasn’t a problem any more, not because he was older, but because he was wiser. As George himself says,

“Some people will judge you negatively for being too young or too old. That can stop some people from going any further with their idea, but I decided to see it as a challenge. It was my chance to prove them wrong. If you have an idea, go for it. That’s what I did and it led to some incredible things happening.”

He started the business when he was 18 years old, in 2016, after a classic light bulb moment while taking part in Sync the City – a 54-hour non-stop, start-up hackathon in Norwich.

First off, he took the family and friends funding route. It wasn’t a decision he took lightly. but they believed in his idea and entrusted him with £70,000.

He used those funds to continue developing Prosper BI – a business intelligence tool that predicts cash flow, purchasing patterns and profitability – and to attract and onboard an initial cache of customers.

With that funding and set of customers, he could demonstrate to other investors that he was trustworthy and developing a tool that businesses were finding valuable and that, with the right backing, could be scaled quickly and become very profitable.

It paid off.

As of November 2017, The SenLab Group’s first birthday, Davis has managed to secure £300,000 in investment from angel investors.

Here’s what he learned about going down the family and angel investor route:

Understand who to pitch to: Angel investors will be more interested in advising and nurturing small businesses compared to venture capitalists (VCs), who’ll want to invest a lot more upfront but get a lot more in return. VCs are also more interested in scale ups rather than start ups. The key question to ask is this: do you need money to launch or to develop and grow? If you’re pre-revenue then you should look to angel investors first. If you’ve got revenue then you can go to a VC, but you should also have a business that has explosive and disruptive potential – they’re looking for massive growth and return. VCs will help you rapidly scale because they want a rapid return.

Investors will ask you to prove yourself: when you’re asking for investment, quite naturally, the investor will want to know why you’re asking and why you’re in business. Are you doing this to line your own pockets? What evidence can you provide to support your pitch? Do you really have X amount of customers already? Angels and VCs will both do their due diligence because it’s their reputation and money they’re putting on the line. Also, some capital groups or angel clubs may not allow you to pitch until you meet certain criteria.

Seek the best legal representation you can possibly afford, because you need to be sure you understand the nature of any investment contract so you can make sure you get what you want out of it. Don’t write your own contracts or NDAs or register your own shares. Let a professional do it for you. This is especially important if you have zero experience and knowledge in this area because the chances of signing up to something that isn’t in your favour are much higher.

Get advanced assurance: if you’re issuing shares, apply for assurance from HMRC so that the shares you issue are eligible for both SEIS and EIS tax relief. Your angel investors (but not VCs) will want that for sure.

Be able to justify every penny you’re asking for. Put together an investment prospectus that shows an investor where, when and what their money will be invested in, and why. Allow for a year’s “runway”: show the investors how their money will help you survive for a year.

Present the deal, not just the product. Investors want you to cut straight to the point. What do you want from them and what will they get in return? The product or service you’re offering may be incredible in every respect, but the investor doesn’t have to agree with that or like it, they just want to know if it will be profitable.

Embrace feedback and respond positively. When investors give you feedback they want you to respond, and how you respond could make or break the deal.