If you have decided to start your own business, you will need found to develop your idea. Starting from scratch can be difficult when you don't know how to do. Here's a few examples when it comes to funding your company.
So you’ve decided to start your own company, you’ve decided which one of your many ideas will be the one and now is the time to start working on your project!
But to develop a company, you will have to rely on funding. No matter how dedicated you are, hard work alone cannot turn your idea into a successful business.
So what are your options when it comes to funding your company?
Bootstrapping refers to the process of starting your company with almost no resources except what you have.
As an entrepreneur, this means that you will rely solely on the money you saved and make use of everything that comes for free, like turning your parents’ garage into your unregistered company’s headquarters.
Bootstrapping comes with advantages and drawbacks.
It will force you to be creative and to make full use of every resource. Obviously, you’ll be free to develop your company as you wish, since no third parties are part of the process.
However, the lack of money will definitely hinder the company’s development as it will reduce the time you have to create a smooth running operation.
Without any external funding, your company will have to generate revenue quickly and speeding up the process to achieve that can also lead to flaws in the product or service.
Friends and family
You can also rely on family and friends. If a member of your family has money and is willing to invest it, this will help you start your company. However, you’ll have to give him a part of the company in return.
In order to do that, you’ll have to register your company so you can issue common stock. If one of your cousins gave you 10 000€, then you will give him a percentage of your company representing the amount of money he invested.
The money raised via your family and friends will give you time to structure your company and furthermore enhance your product or service.
Business angel and incubators
The next step for your business is to seek more money and/or advice from professionals. In exchange for a percentage of your company, you can start working with incubators.
These places will provide you with cash, co-working space and advisors.
You can also set your eyes on an “angel round”. But before that, you need to find and convince your business angel.
Usually, to raise the interest of a business angel, your company need to be seen as valuable. In 2013, The average “angel round” for companies was 600,000 dollars.
Now, keep in mind that business angels see pitches all the time so you’ll have to make your best case if you want to convince one.
Venture Capital round
Finally, you have the option to approach Venture Capitalist. Once you have you first working prototype and created interest from potential users, it’s time to launch your first venture capital round, usually known as series A.
The principle is the same as the one described with your family members or business angels. Venture Capitalists will invest a large amount of money into your company through private equity structures.
Your series A will be followed by series B, C, etc. From there on, there are 3 main possibilities for your company.
- If it’s not successful, then you will run out of funding eventually and your company will die.
- Or, your business will grow steadily and start to raise interest from bigger companies that will want to acquire it.
- Best case scenario, after many rounds of funding, you will decide to launch your Initial public offering (IPO) and make your company go public.