Comparing and contrasting the various methods of funding and sources of financing and money management for entrepreneurial start up endeavors.
Financing, start up capital investment, seed capital and other funding methods are a necessary part of any start up, and a very important ingredient for the entrepreneurial enterprise. Funding your venture goes hand-in-hand with the merit and validity of your opportunity as well as with your skills and knowledge to execute your idea. Grassroots financing from the entrepreneurs themselves and other investors and financial sources is a crucial ingredient for the start up. Close family members and friends and neighbors are by far the two biggest sources of informal capital for startups. Many entrepreneurs look to family and friends, business associates and others close inside their professional network for acquiring initial seed capital to augment their own personal investments in their startups. These are referred to as “Angel Investors”. Many entrepreneurs waste a lot of valuable time by prematurely seeking seed capital from angel investors and even from formal venture capitalists—searches that come up empty-handed almost every time. Entrepreneurs must also understand that they themselves will have to put some “skin in the game”, normally about two-thirds of the initial capital needed to launch their ventures. Using clever, more methodical strategies such as “bootstrapping” and “sweat equity” to build the business are wise to implement too.
Address the following:
- Compare and contrast the following funding sources and methodologies below and provide real-world examples of how those have been effectively implemented for the start up organizations you will highlight for each. Make sure you also address any challenges and pitfalls they experienced through the start up funding process and what decisions they made to rectify those problems.
TYPES OF FUNDING SOURCES & METHODS:
– PERSONAL – family and friends, colleagues, professional network, etc. (a/k/a Angel Investors)
– PRIVATE – formal non-traditional large-scale private investors and investor groups, hard money, etc. (a/k/a Venture Capitalists)
– GOVERNMENTAL & BANKING – typically limited to various local, municipal, state, and national institutional lenders, etc. (a/k/a Small Business Administration)
– BOOTSTRAPPING – where you seed the start up yourself using the revenue and profit from immediate commerce and operations of the business activities to further fund the growth of the organization.
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