25 Jun Think Broadly When Sourcing Start-up Capital
Have you ever considered how many people have let go of a great idea for a business simply because they let the fear of finding capital chase them away? Don’t be one of them.
It’s not unusual for a new entrepreneur to have a rather short list of capital investment sources, such as personal investment and a bank loan or grant. But it’s important to consider a broad number of investment options and then put together the best possible combination of funding for you and your business. Here is a list of potential finance sources to get you started.
1. Self-funding. Financing your new business on your own can be such an obvious option, you may not even consider it a part of your financing package. But it should be your first consideration, for a number of reasons. The first is obvious: if you aren’t willing to finance your idea, why would an outside investor be willing to do so? But another advantage is retaining complete control of the decision-making process. On the other hand, if you self-fund you lose out on having investors as mentors.
2. Angel investors. If your funding needs aren’t too sizable, you may want to consider an angel investment. This option offers more day-to-day control over your business than venture capital funding, explained below. Determine what goals potential angel investors have and see how they match with you own objectives.
3. Blood money. It’s not only the most popular source of start-up capital, it’s also the most risky. Yet every year, entrepreneurs will turn to family and friends for much-needed capital when a company is too new or too small to get approval for financing through outside resources. To avoid risks involved in going this route, put everything in writing. When you have a bit of success under your belt and are considered credit-worthy, bankers or investors will have their legal experts go over your corporate capitalization structure in great detail. If they find any sloppiness in your financials, this can lead to roadblocks.
4. Venture capital. Venture capital offers the promise of large amounts of funding, but expect to give up some control over operations as well. Keep in mind that every new business could use a hand from experienced, well-connected, intelligent business people, however.
5. Bank loans. The most recent economic crisis has fostered a lending climate that is highly restrictive for first-time business owners. Some entrepreneurs have opted for taking out a personal loan or line of credit when facing a dead end trying to borrow under their business name.
6. Government programs. The economic crunch has also impacted federal and state dollars available through government loans and grants as well. Expect to adhere to a lot of rules since these programs are supported via taxpayer dollars. Few programs are available simply for starting a business, so do some research to determine what programs you may be eligible for.
7. Incubators and Accelerators. This funding source is a great way to harvest some insight and mentoring, as well as gain access to some start-up help. An incubator is usually described as a way for new entrepreneurs to expand their ideas for a start-up, and get some insight and advice early on. An accelerator provides a new business owner with things like office space and equipment, along with mentorship and a modest cash investment to help get things off the ground.
Consider funding options carefully and be sure to carefully consider the amount of funding you need. You will also need to outline a realistic repayment plan.