3. FINANCING THE VENTURE

• Business Financing


  Access to capital for a business, even large companies routinely seek capital infusions to meet short-term obligations
• Typical Financing Sources

  • Personal investment
  • Love money
  • Venture capital
  • Angels
  • Crowdfunding
  • Business Incubators
  • Grants and subsidies
  • Loans
• Personal investment


  Investing your own money, either in the form of cash or collateral on your assets, to prove to your banker that you have a long-term commitment to your project
• Love money


  Money loaned by a spouse, parents, family or friends, considered as patient capital that will be repaid later as your business profits increase
• Love money


  • Family and friends rarely have much capital
  • They may want to have equity in your business, be sure you don't give this away
  • A business relationship with family or friends should never be taken lightly
• Venture capital


  Funding source for technology-driven businesses and companies with high-growth potential, venture capitalists take an equity position in the company and expect a healthy return on their investment
• Angels


  Wealthy individuals or retired company executives who invest directly in small firms, they contribute their experience, network, and technical/management knowledge
• Angels


  • Tend to finance the early stages of the business with investments in the order of $25,000 to $100,000
  • Reserve the right to supervise the company's management practices, often involving a seat on the board of directors and an assurance of transparency
• Crowdfunding


  A form of fundraising where a business asks the public for a contribution, usually in exchange for equity in the company
• Types of Crowdfunding

  • Equity crowdfunding
  • Debt crowdfunding
  • Donation/rewards-based crowdfunding
• Business Incubators


  Provide support for new businesses in various stages of development, commonly inviting future businesses to share their premises, administrative, logistical and technical resources
• Business Incubators


  • Generally focus on the high-tech sector
  • The incubation phase can last up to two years, after which the business usually leaves the incubator's premises to enter its industrial production phase
  • Businesses that were supported by an incubator have a better success rate over five years
• Grants and subsidies


  Funding provided by government agencies to help cover expenses such as research and development, marketing, salaries, equipment and productivity improvement
• Loans


  The most commonly used source of funding for small and medium-sized businesses, start-ups have a harder time accessing loans than established businesses