An Entrepreneur’s Guide to Start-Up Funding

Here at Veitengruber Law, we are big fans of entrepreneurship. After all, that’s how our firm came into being! Taking the leap from a traditional job with a regular paycheck (not to mention health insurance benefits and potentially more perks) is an intimidating move, for sure. However, if you have a true entrepreneurial spirit and know you would be happier working for yourself, getting start-up capital is one of the biggest hurdles you’ll have to clear. Today, we present you with a guide to finding the right funding for your new business.


Where to start:

Be sure that you have a service or product that will be profitable, as well as funding sources.

 

How to avoid failure:

Be able to finance your product or service, in order to bridge the gap between concept and product/service.

 

Three ways in which most entrepreneurs are negatively impacted:

1) Bad concept/idea: This leads to a lack of funding from outside sources. Marketing is key.

2) Lack of plan/strategy: In this case, the idea can be superb, but the entrepreneur has not completely researched the concept and has not created a proper rationale for profitability for potential investors.

3) Not understanding the financial aspects: In this case, the entrepreneur may have created an excellent idea and strategy for the product/service; however, he or she doe not have a full grasp on locating funding.

 

There are six major strategies for locating funding options:

1) Venture capitalists: This person is an individual who invests directly with a company, while earning a stake in the shares of the company in return. This is the most typically misunderstood, yet best options of these six funding avenues.

2) Angel investors: This type of investor is similar to a venture capitalist, but he or she has a more hands-on approach. Angel investors can be located through one’s community; particularly through local investing and entrepreneur groups, as well as the Small Business Association (SBA).

3) Bank loans: This is a popular avenue for investment with local banks providing small loans to local businesses. This should be one of the primary options to either accept or exhaust, depending upon the outcome. However, keep in mind that in the past decade many of the policies for lending have become increasingly strict.

4) Private funding: This source of funding typically comes from family and friends of the entrepreneur, which makes this option one of the most feasible. Typically, family and friends will invest directly with the person they know before an angel investor or a venture capitalist would readily invest in the company/service. However, always be aware of the fact that borrowing money from close relatives and/or friends could have a major impact on your relationship.

5) Self-funding: This option involves using personal property to fund one’s company or service; for instance, liquidating assets to utilize the money directly, taking out an extra mortgage on one’s home, or utilizing credit cards. This is the highest risk option, due to the potential ramifications of investing poorly.

6) Crowd funding: This method of funding is one of the newest and most popular ways to invest in one’s company/service. The websites Kickstarter and Indiegogo, for instance, provide a platform by which entrepreneurs can showcase their product/service without having to provide the investor with equity of the company.

 

 

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