It takes more than just a great idea
to run a successful business. Entrepreneurs and existing business owners need
capital to pursue their vision.
But if
you don't have the cash in your wallet, what do you do? Luckily, there are
still options for funding new companies, but finding and securing the cash will
take careful research, good negotiating skills, and, above all, dedicated
commitment to launch your business. Few way out for raising funds by startups
are provided below:
1.
Family
& Friends
2.
Crowd Funding
3.
Preferred Stock & Convertible Debt
4.
Angel
Investment
5.
Venture
Capital
1. Family & Friends- People like to invest not only in the idea but in the person
involved in it. However using family and friends as a source of raising money
can be risky. It can create a strain that can ruin personal relationships. It
is also worth to note that over 70% of startups fail in their first three years
often because of factors completely outside of the control of the owners. Make
sure that you are borrowing money that they can afford to lose. Execute a written
agreement with all terms, even if it is a “friendly” loan.
2. Crowd Funding- Crowd funding takes it name from the fact that your project is
funded by the public using their own personal funds. To start with, you propose
the idea that you wish to see funded. People can then choose how much or how
little they want to give you.
3. Preferred Stock/Convertible Debt- Startups generally offer preferred
shares or convertible debentures when they raise money. Common stock is
typically given to founders and reserved for options. The reason to offer
preferred shares or convertible debentures is that they often come with
provisions like rights and dividend preference. They are also superior to the
common stock. This will make the investment more attractive and assure the
investor he or she will be paid out first.
4. Angel
Investment- Angel Investment
can go beyond the purely financial. The advice and connections that a good
angel investor can offer can be equally as valuable. Angel investors are
willing to take on the risk of a brand new startup.
5. Venture
Capital- Venture
capitalists aim to invest in early stage businesses with high growth potential.
Traditionally venture capitalists received equity in the business in exchange
for funding it. However these days they typically demand a mixture of equity
and debt financing
There can be different
other structures for raising funds by startup, however, a startup should look
into the options which is best suited for your business.
To know the further
details about Raising Funds by Startups and other aspects of startups, contact
us at admin@equicorplegal.com or visit
www.equicorplegal.com
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