A start-up company is an organization which has a scalable business model. These companies are usually in a phase of development and are searching for market share. A company may cease to be a start-up as it passes various milestones, such as becoming publicly traded (IPO) or ceasing to exist as an independent entity via a merger or acquisition.
Once you know that you want to start your own company, you need to know how much finance you need, and it’s important to know your options. Knowing who to approach for finance can help you find the best finance option for your business. It can also give you several alternatives if traditional finance options fail. See the list below for some common sources of debt and equity finance:
- Self funding: Also called ‘bootstrapping’, self funding is often the first step in seeking finance and involves funding purely though personal finances and revenue from the business. (Investors & lenders will both expect some amount of self funding before they agree to offer you finance)
- Family or friends: Offering a partnership or share in your business to family or friends in return for equity is often and easy way to obtain finance. (This option must be carefully considered to ensure your relationship is not adversely affected)
- Private investors: Investors can contribute funds to your business in return for a share in your profits and equity. (These can be angel investors which can also work in the business providing expertise or advice… as well as funds)
- Venture capitalists: They are generally large corporations that invest large sums in start-up businesses with the potential for high growth and large profits. (They typically require a large controlling share of the business and often provide management or industry expertise)
- Stock market: An Initial public Offering (IPO) on the stock market involves publicly offering shares to raise capital. (This can be more expensive and complex option & carries the risk of not raising the funds needed due to poor market conditions)
- Government: In general, they don’t provide finance for starting up. However you may be eligible for a grant in certain circumstances.
- Crowd funding: Some social media websites offer a crowd funding platform for start-ups. It involves setting a funding goal, providing project and budget details and inviting people to contribute to a start-up capital pool.
- Financial institutions: These are banks, building societies and credit unions which offer a range of finance products for long-term & short-term finance solutions. (Some products are: business loans, lines of credit, overdraft facilities, invoice financing, equipment leases, asset financing etc…)
- Retailers: If you need financing to purchase goods such as furniture or equipment, many stores offer store credit through a finance company. (This is generally at a higher interest and it is suited to businesses that can pay the loan off quickly within the interest-free period)
- Suppliers: They trade credit that allow businesses to delay payment for goods. The terms vary and trade credit may be offered to businesses that have established relationship with the supplier.
These forms of financing are almost all of the sources that are offered to companies. A worldwide boom in crowd funding has been occurring in the past few years and I believe it will continue to do so for the next decade.
As usual, if you have any questions contact me via email or twitter (@ArberDoci).