Go Legal Yourself! by Kelly Bagla

Author:Kelly Bagla [Bagla, Kelly]
Language: eng
Format: epub
ISBN: 9781119745556
Publisher: Wiley
Published: 2021-01-07T00:00:00+00:00

Equity Funding

Bootstrapping: The business funds itself. When first getting started, or growing, many entrepreneurs use bootstrapping, which means financing your company by scraping together any personal funds you can find. This typically includes your savings account, credit cards, and any home equity lines you may have. In many cases, using the money you have instead of borrowing or raising is a great approach, and some business owners continue to bootstrap until their business becomes profitable.

Family and Friends: Asking your family and friends for money might seem like a daunting prospect, but tapping those closest to you is often a good first step, as they can provide either equity or debt funding. While this may initially seem like a good source, be careful about selling part of your business to this group. Unfortunately, businesses fail and the loss of capital can then cause hurt feelings, ruin friendships, and make for very unpleasant family gatherings. Be sure that your investors (friends and family) know the true risks involved when giving or loaning money to your company.

Partners: Taking on a partner can be a source of funding. An ideal partner comes with strong connections, relevant experience, and valuable advice, not just financial support. Before adding a partner to your business, you may want to consider, what is your new vision for your company and does the prospective partner share that same perspective? Not only is it important that you both share the vision for the overall goals and objectives for the company, it's also important to come to an agreement on which actionable steps will be required to execute the vision.

Angel Investors: An angel investor is a person or group who invests in a new or small business venture, providing capital for startup or expansion. Angel investors are typically individuals who have spare cash available and are looking for a higher rate of return than would be given by more traditional investments. An angel investor typically looks for a return of 25% or more. Angel investment is a form of equity financing where the investor supplies funding in exchange for taking an equity position in your company. The big advantage is that financing from angel investment is much less risky than debt financing. Unlike a loan, invested capital does not have to be paid back in the event of business failure, and most angel investors understand business, can take that risk of losing their investment, and take a long-term view.

Venture Capital: Venture capital is a form of financing that provides funds to early state, emerging companies with high growth potential in exchange for equity or an ownership stake in your company. Venture capitalists take the risk of investing in companies with the hope that they will earn significant returns when the companies become successful. They are wealthy enough to take losses that may be incurred by investing in unproven, high-risk companies. When choosing companies to invest in, they consider the company's growth potential, the strength of its management team, and the uniqueness of its products or services.

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