Starting a small business can be a big task no matter how small you want your company to be. Even running a local lawn service can require large amounts of capital and a business plan to get any kind of funding to really get started. In today’s marketplace, there are more and more at home online businesses popping up all the time and when the owners think about funding for these businesses, they are typically thinking venture capital funding. Venture capitalists have billions of dollars to hand out, but they typically have strict criteria as to what kind of businesses they will accept. When going to a venture capitalist, a small business owner must be able to provide not only a “scalable business model” but also an exit strategy:

The first means that you can take your initial concept and make it huge, either by reaching a single, very large global market (e.g., Facebook or Twitter) or by replicating a proven model in many different markets (e.g., Whole Foods (WFMI) or Yelp). The second means that you have a plan for how the investors are going to get their money back.

Most smart entrepreneurs can spin a story about scalability, but I’d think twice before going down this road. Conquering the world is a tough business, and once you raise money on that promise, you no longer have the choice of remaining more modest in your ambitions (and maybe more realistic about your company’s potential).

The exit strategy also poses an odd paradox. There are really only two types of exits for a venture-backed company: an initial public stock offering or a sale/merger. IPOs are tough to pull off even in the best of times, and at present, they are almost impossible: Only a handful of companies have managed it over the last 18 months. That leaves a sale—but if you say upfront you’re starting the company in order to sell it, your religious commitment to the venture could be in question.

Another type of funding is funds from angel investors. Angel investors are typically people you know and are more diverse in what they are willing to accept as far as business models go, typically. While friends and family can be a source of angel investments, you will end up with more funding if you find other sources in combination.

Former colleagues or mentors can often be excellent prospects; good angels are usually invested in you as much as your business plan. I’ve also found that angels are very sensitive to who else is a part of the deal, so if you can get one person with a good reputation to sign on, it will be a much easier road from there. A pretty common level of commitment for an experienced angel investor is $25,000 to $50,000, though some angels will do as much as several hundred thousand.

If you need money to buy hard assets, business loans are a good way to raise money. While right now, banks have become skeptical of lending, if you are able to put up collateral, then there is a much better chance for you to get a loan. It is important to pay attention to the terms of any loans or financing options. In the case of online businesses, where it is more difficult to finance some things, you can co-sign a loan for your business to get funding through loans or credit cards, but this means that if you default the creditors will come after you.

There are a few other ways to raise money for your small business. Many are time consuming, but if you have a business plan that you really believe in then look into it!

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