Obviously, starting a business requires a certain amount of start-up capital. Although the business plan has to answer various questions on your business model (will you outsource or offshore any part of work?) and other details, initial startup funding remains an important issue for any entrepreneur.
Actually, there are not so many sources of start-up capital for a business. So, we will take a look at different sources, explain what is startup capital and how it could be founded.
Startup capital examples
Unconditional Starting Capital
This can include found treasure, received an inheritance, lottery winnings, or money received from parents. The point is that you already have the funds. You just have to correctly dispose of them so that your business gains momentum and starts making a profit. We will not consider this option in more detail since it is a matter of your luck and your starting capital’s conditions.
You can put your money aside, say, on a deposit, and wait for the required amount to be accumulated. The method is certainly working but you need to calculate how much you can actually save and how long it will take to accumulate the required amount. It is possible that the resulting terms will turn out to be unreasonably high and not everyone will be able to live for several years with their belt tightened.
This method is certainly the most affordable but also the least profitable. The fact is that banks set fairly high-interest rates on loans for businesses, and you will most likely have to grow income for a very long time to pay off the debt and start making real profits from your business.
Besides, to receive such a loan, you need to provide a detailed business plan for the project, convince the bank of its feasibility, and also provide personal property to secure the money received.
In general, if you choose this option, we suggest that you carefully calculate everything bearing in mind risks. Then you can decide whether it is worth the candle.
Diversification of Income
You can buy securities of another company or even several, you can play on stock exchanges, you can even start a simpler “small” business. From the income received from these operations, you can accumulate start-up capital to implement your original, larger-scale idea.
There are two problems with this option: firstly, there are always risks, and secondly, you cannot do without start-up capital as well. Although its amount will be less than required for the main idea.
There are many public and private foundations out there to fund your business if they like the idea. Of course, they don’t help everyone. You will have to apply for the competition and hope that your idea is the most promising and your business plan is feasible and sensible. In any case, it’s free to apply, so look for the information and try to use it in your starting capital.
They are also called business angels. This option is a bit like receiving a grant from a public or private foundation but leaves you more room to persuade and negotiate. Also, you should be aware of the funding stage preferred by the investors in your industry to catch the perfect timing for inviting them to your company.
However, you will have to convince the investor not only that your business plan will work, but also that you are worthy of receiving the investment. That’s why negotiations require proper preparation and a clear understanding of how to talk to them.
- Build your real startup capital
The investor will always evaluate you according to your abilities and potential. As a founder, you have to show yourself as a truly smart businessman. To do this, you need to continuously invest in yourself, in the development of the necessary skills and knowledge.
Age is often considered as an indicator of experience, reliability, and seriousness. Investors can dismiss you just because you are young. You must be prepared for the fact that you will have to prove your skills and ability to achieve results.
A year after founding Crimson Education, they started looking for investors in China. In this country, culture determines strong dependence between how the person is treated and their age. The business angels in China rejected Crimson Education’s offers because the CEO was quite young and it was not easy to consider them to be a truly capable businessman. But the real results of the company’s work were able to change investors’ opinion. Nowadays Crimson Education has received a considerable share of investments from partners from China.
- Don’t look for investors only in your own country
Often an idea that does not find a response in the home country may be in demand in another. Don’t be afraid to go outside your home country and develop contacts around the world. Look for information, study the global investment market, chat and try.
Before starting Stripe, Patrick Collison started another software company. Having received zero support from investors in his home Ireland, Patrick did not give up and turned to California. He managed to attract investments, develop his business and sell it. Then he used the money from the deal to found Stripe
In this article we have answered the question “What is startup capital?” and learned 6 different sources of start-up capital for new business. If you don’t happen to dispose of large sums, you can still accumulate initial capital by saving money, interacting with the foundations, or other approaches. Also, we described the tips for successful negotiating with private investors.