Rasing Capital For Your New Start Up
When you have a great idea, has made your perfect business plan and everything is set up to make a great deal of money, there often is one thing that is standing between you and financial success: start up capital. Getting investors to give you money can be a very difficult task, as there are a lot of different prospects out there that want money to support their new projects and ideas. You need to learn about the different types of capital you can raise and how to do it.
First you need to know that there are two different types of capital a business can raise:
Debt is money that is borrowed, most often from a bank and this you have to repay to them, with added interest of course. This is very much similar to how you get a car loan, mortgage and so on, only that now you have to pitch the bank your start up plan and business idea and see how they value it. If you are lucky, you get your capital at a decent interest rate, although it will often be a lot higher than a mortgage where they have some form of security.
Equity is money that shareholders put into your company, and this also includes (at later stages) retained earnings. Here you do not have to pay back the money, as you had to with debt, but here the shareholders owns a part of the company and expects you, the owner and leader of the company, to increase the value of their shares. Since equity makes it so that you arent required to give back the money, there has to be other downsides to it, and there is. The shareholders, if powerful enough, can put alot of pressure on the management and will have high expectations to them. It is wise to have a somewhat large stake in the company as a leader oneself, if not for the sake of wanting to profit, but also to keep the power over the firm for oneself.
There are ways to raise money besides these, and ones are especially viable for new and smaller start ups. These include raising money from family and friends, applying for awards and grants and entering different business competitions that may arise. Here one can get somewhat creative. As long as you got the idea, some will probably help you with the money side of it.
First you need to know that there are two different types of capital a business can raise:
Debt is money that is borrowed, most often from a bank and this you have to repay to them, with added interest of course. This is very much similar to how you get a car loan, mortgage and so on, only that now you have to pitch the bank your start up plan and business idea and see how they value it. If you are lucky, you get your capital at a decent interest rate, although it will often be a lot higher than a mortgage where they have some form of security.
Equity is money that shareholders put into your company, and this also includes (at later stages) retained earnings. Here you do not have to pay back the money, as you had to with debt, but here the shareholders owns a part of the company and expects you, the owner and leader of the company, to increase the value of their shares. Since equity makes it so that you arent required to give back the money, there has to be other downsides to it, and there is. The shareholders, if powerful enough, can put alot of pressure on the management and will have high expectations to them. It is wise to have a somewhat large stake in the company as a leader oneself, if not for the sake of wanting to profit, but also to keep the power over the firm for oneself.
There are ways to raise money besides these, and ones are especially viable for new and smaller start ups. These include raising money from family and friends, applying for awards and grants and entering different business competitions that may arise. Here one can get somewhat creative. As long as you got the idea, some will probably help you with the money side of it.
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