How am I going to fund my startup? When launching a new business, this is one of the most significant questions on every founder's mind. There is a lot of money out there to fund startups of all kinds. The real questions are how can you get some of it, and which type of funding structure is best for your business?
We will discuss all the major sources of funding for new businesses. We have chosen to focus primarily on venture capital since it gives you a clear understanding of what smart investors want to see before investing in a company.
Generally speaking, you can get money for a startup in three ways.
If you can't qualify for a grant or convince a relative to give you free money, you will have to choose between debt or equity. In both cases, the investor is interested in your ability to generate future profit. When you get a loan, you need to demonstrate that your future earnings will be substantial enough to allow for the repayment of the loan plus interest. When you get an investment, however, you need to show your investors that your future returns have the potential of being so high that it's worth the sizable risk they would take by investing in your company. The best way to show a potential investor that you have a high probability of making money in the future is to show them that you're well on your way already. We call this traction, and investors love to see traction.
Traction, however, does not always mean revenue. Traction can be the number of users on your app or the number of signed contracts from future clients. Traction is anything that shows proof that you are well on your way to finding a repeatable and scalable business model.
Investors care about getting their money back. Loans need to be repaid, and investors expect to see a return on their investment. Venture-capital investors usually expect a liquidity event to happen in 3 to 5 years. This means that if you take on venture capital investment, you essentially agree to sell your company or go public.
How am I going to fund my startup? When launching a new business, this is one of the most significant questions on every founder's mind. There is a lot of money out there to fund startups of all kinds. The real questions are how can you get some of it, and which type of funding structure is best for your business?
We will discuss all the major sources of funding for new businesses. We have chosen to focus primarily on venture capital since it gives you a clear understanding of what smart investors want to see before investing in a company.
Generally speaking, you can get money for a startup in three ways.
If you can't qualify for a grant or convince a relative to give you free money, you will have to choose between debt or equity. In both cases, the investor is interested in your ability to generate future profit. When you get a loan, you need to demonstrate that your future earnings will be substantial enough to allow for the repayment of the loan plus interest. When you get an investment, however, you need to show your investors that your future returns have the potential of being so high that it's worth the sizable risk they would take by investing in your company. The best way to show a potential investor that you have a high probability of making money in the future is to show them that you're well on your way already. We call this traction, and investors love to see traction.
Traction, however, does not always mean revenue. Traction can be the number of users on your app or the number of signed contracts from future clients. Traction is anything that shows proof that you are well on your way to finding a repeatable and scalable business model.
Investors care about getting their money back. Loans need to be repaid, and investors expect to see a return on their investment. Venture-capital investors usually expect a liquidity event to happen in 3 to 5 years. This means that if you take on venture capital investment, you essentially agree to sell your company or go public.