For many years, the steps that business took to finance its growth were pretty straight. An investor would put in his personal savings, then approach the banks to fund the next phase of growth, then approach venture capitalists. With the business having grown, the investors would go public and offer the public shares of his company. This financing path has, however, narrowed in the recent with other options becoming available. Some factors have contributed to these modes of financing becoming less popular.
The financial crisis that happened in 2008 hit banks hard making them less generous with loans and financing models. The banks were forced to rework their risk assessment to hedge themselves against bad loans. The banks were now asking for collateral which startups did not have. Secondly, conditions that need to meet before companies could go public have also become stringy. Regulators have raised the threshold for listings to protect the public.
With the setbacks above, the spirit of investors has not been dampened. In fact, other fundraising models have come up. Models that are not only cheaper but also have less regulatory bottlenecks. The various ways to finance your business startup include the following:
You can contribute your labor and time to develop your business. While a value cannot be placed on that kind of capital, it has several advantages. You have a monopoly over the decisions made, and you fully own the intellectual property created. History is littered with examples of companies that were started in garages and bedrooms but blossomed into giants with turnover running into Billions of dollars. At some point, you need to draw a memorandum of understanding with other partners on the roles that each of you will play in the growth of the company.
The easiest way out is always to go to your savings and contribute to the business. Alternatively, you can use your credit card to pay for business expenses, buy merchandise, pay wages, etc.
By putting your money in the business, potential investors are always convinced that you are in for the long haul. Secondly, you have a strong grip on the decision making an aspect of the business. Thirdly, is advised to keep proper books of records to avoid dispute in the future with people who might have joined along the way.
Innovation has made sure that businesses have to fund by launching appeals on social media. Some social media companies help firms in this regard. These social media companies are like go-between of the investor and those who want to fund the venture. Interestingly, those who want to invest in the business are offered incentives.
In conclusion, regardless of the financing model, scrutinize it for the cost of the funding and how your control of decision making will be affected once the deal sails through. It is a delicate balance between your control of the decision-making process and on the various ways to finance your business startup.