Funding Sources For Your Startup
In this lesson, you’ll learn about the different options available to fund your startup and which ones to use depending on your situation.
It’s time to think about funding your startup.
Do you know how much you need?
Monthly Cash Burn
It is how much your startup spends every month. Try to keep it as low as possible.
You CAN’T ignore this key figure!
If you don’t know where to start, follow these steps:
1. List the stuff you need to buy and all the things you need to pay for.
2. Do your projected first-year cash flow. Estimate sales, costs, and expenses.
3. Those costs are what you need from investors.
4. It never goes exactly the way it’s planned (launch delayed, legal issues, etc.) so you probably want to estimate a buffer.
5. Reality check: if that calculated amount is way too much, investors will laugh at you. Spend less.
6. Double reality check: if you can spend less, maybe you can do it without investors.
Raising too little money
The main risk in this case is that your business will cease to exist before you can reach your break-even point (or before the next time you raise money).
Raising too much money
The main risks are:
– Not being able to actually find investors
– Waste money just because you can
– Bad media coverage if specialists feel it’s too much money
– You are not depending on anyone (investors, banks, etc.)
– It helps you focus on prioritiesCons:
– It may take longer to grow since you can’t hire as soon as you would like
– No debt
– No investors
– You can get a lot of money if the company decides to keep working with you
– You can strengthen your brand fasterCons:
– Not easy to obtain such a partnership
– You are tied to the success of the pilot project
– The payment schedule may not fit your cash flow
– Usually quick
– Usually many funding options
– Possibly large amount of money
– You don’t give up equityCons:
– Difficult to obtain
– Time-consuming process
– You have to repay it with interest
Depending on your company structure, you may be responsible for repaying the debt yourself if your company can’t.
Crowdfunding is the practice of funding a project or venture by raising monetary contributions from a large number of people.
Crowdfunding is a form of crowdsourcing and alternative finance.
It has become more and more popular in the past few years, especially with the emergence of online crowdfunding platforms. If you are curious, you can check how it works below.
Example:
https://www.kickstarter.com/
– You check the interest for your product at the same time
– It’s a form of “upselling” (you sell your product even before it is ready)
– No debt, no investorsCons:
– You need to dedicate a lot of time (and money) to launch a successful campaign
We haven’t defined equity yet:
Equity is a stock or any other security representing an ownership interest. This may be in a private company (not publicly traded), in which case it is called private equity.
– No debt
– Mentoring
– Free workplace (not always)Cons:
– You share a part of your company
Startup competitions are events where entrepreneurs can present their project in front of a jury.
The winner(s) may get some of the following:
– media coverage
– money
– mentoring
– Web Summit (City changes every year)
– The Next Web (Amsterdam)
– SXSW (Austin, Texas)
– LeWeb (Paris)
– If there is a prize in the form of money: no debt
– Usually great visibility (media)Cons:
– Few winners
– The time you spend on the competition
– Usually little money to earn
Your country/city may provide grants for entrepreneurs. Sometimes they target a specific sector, while other times it is just about boosting growth.
They can be provided by institutions in your city, region, country etc. (European Union also provides grants, for example).
– No debtCons:
– Usually a lot of paperwork (a loooot)
– Long process
– Feedback
– Time
– Money (what this lesson is about!)
– Easier to convince at an early stageCons:
– They may lose everything if things go wrong
– They usually have no idea about the business or your industry
– Angels usually have experience in their industry
– Angels are more flexible than VCs (Venture Capital firms)Cons:
– You give away equity
– Generally no “follow-on” investments
– Large sums of money at once
– They usually have expertise in growing and exiting businesses
– They bring credibility to your company
– They usually have a vast networkCons:
– You give away equity
– They may disagree with you and may even be willing to kick you out if necessary
http://startupfundraising.com/
