Image Credit: Ron Hadar Business Development Manager at iAngels. Found on LinkedIn A great idea, a new exciting technology, a new process is not enough. Your business needs money to survive and grow. There are a number of sources for funding. They vary in what’s best for a particular business and in the way they provide funding. They all have good and bad points. I addressed some of these sources in other posts on this blog. This post includes those as well as other sources. This post is to provide you with the types of sources only and is not a recommendation for any of them. Your business is unique so work with your accountants, attorneys, and business consultants to find the best route for your business. Don't focus on a single source, to the exclusion of others, but should look at multiple ones at the same time just in case your first choice doesn't work out.
Friends, and Family. This is largest potential source of funding for your business. It may not be the greatest in dollars but it is certainly the greatest in numbers. These people usually know you and know your need for funds. They may also be familiar with the history and operations of your business. It may be easier to interest them in providing funds but, keep in mind that state and federal securities do apply if you issue stock or other securities in exchange for funding. Talk with your attorney before entering into any agreement just as you should when working with someone who is not a friend or relative
Angels. Angels are high-net-worth individuals looking for high-risk/high-return investment opportunities. They can be a good source of seed capital for a business start-up. They may also be a source of funding between larger funding rounds. They are usually more difficult to find because they are individuals and often look for funding opportunities that have an emotional pull in addition to the potential for a high return for their investment. In recent years groups of angels have formed associations, clubs, and other organizations in order to see more and perhaps better investment opportunities. By working together they are able to better scrutinize these opportunities and do a better job of due diligence. It also makes it easier for businesses looking for funding to find them. The Angel Capital Association (ACA) provides a listing the angel groups that are members of their association. This may be a place to start when looking of angels in your region. One word of caution in looking for angels, trying to solicit or advertise for them may be a violation of federal or state securities laws so consult with your attorney before trying either of these methods.
Government Programs. Government agencies are probably the largest source of funding available to small business. These programs while government backed are not completely funded by the government agencies. The U.S. Small Business Administration (SBA) has several programs including their 7(a) and other loan programs where they guarantee loans made by banks and other lending sources. Take a look at their website to learn more about these programs Here!. oThe U.S.Department of the Treasury has the Small Business Lending Fund (SBLF) which is a dedicated fund designed to provide capital to qualified community banks and community development loan funds (CDLFs) in order to encourage small business lending. “The purpose of the SBLF is to encourage Main Street banks and small businesses to work together, help create jobs, and promote economic growth in communities across the nation.” You can find participating lending instutuions on their website Here!
Friends, and Family. This is largest potential source of funding for your business. It may not be the greatest in dollars but it is certainly the greatest in numbers. These people usually know you and know your need for funds. They may also be familiar with the history and operations of your business. It may be easier to interest them in providing funds but, keep in mind that state and federal securities do apply if you issue stock or other securities in exchange for funding. Talk with your attorney before entering into any agreement just as you should when working with someone who is not a friend or relative
Angels. Angels are high-net-worth individuals looking for high-risk/high-return investment opportunities. They can be a good source of seed capital for a business start-up. They may also be a source of funding between larger funding rounds. They are usually more difficult to find because they are individuals and often look for funding opportunities that have an emotional pull in addition to the potential for a high return for their investment. In recent years groups of angels have formed associations, clubs, and other organizations in order to see more and perhaps better investment opportunities. By working together they are able to better scrutinize these opportunities and do a better job of due diligence. It also makes it easier for businesses looking for funding to find them. The Angel Capital Association (ACA) provides a listing the angel groups that are members of their association. This may be a place to start when looking of angels in your region. One word of caution in looking for angels, trying to solicit or advertise for them may be a violation of federal or state securities laws so consult with your attorney before trying either of these methods.
Government Programs. Government agencies are probably the largest source of funding available to small business. These programs while government backed are not completely funded by the government agencies. The U.S. Small Business Administration (SBA) has several programs including their 7(a) and other loan programs where they guarantee loans made by banks and other lending sources. Take a look at their website to learn more about these programs Here!. oThe U.S.Department of the Treasury has the Small Business Lending Fund (SBLF) which is a dedicated fund designed to provide capital to qualified community banks and community development loan funds (CDLFs) in order to encourage small business lending. “The purpose of the SBLF is to encourage Main Street banks and small businesses to work together, help create jobs, and promote economic growth in communities across the nation.” You can find participating lending instutuions on their website Here!
A search of other federal government agencies will reveal other financing/funding programs. State and local governments also provide financial assistance, based on the company’s industry and location.
Venture Capital. Venture capital investors (VCs) include those organizations with funds from private sources only and those that use both government and private funds to invest in businesses. Depending on their source of funds, VCs may make their investments in loans or convertible debentures or by preferred or common stock. VCs include private equity funds, small business investment companies (SBICs), and business development companies. You can find Entrepreneur Magazines list of “The Top 100 Venture Capital Firms” Here
Corporate Partners. Corporate partnering often involves debt or equity funding by a corporation and is quite often tied to a business relationship. It usually includes a contract of some sort but does not become a new entity. The goal for your business in this arrangement is funding and other help including your partner becoming one of your major customers or suppliers.
Institutional Sources. Commercial banks, finance companies, insurance companies, pension funds, and other institutional lenders are a major source of private financing. Funding is usually in to form of loans, but you may be able to negotiate the interest rate, and maturity Terms of the loan can also include warrants or other equity instruments that can help in the negotiation of interest, maturity, and prepayment. Consult with your attorney and/or accountant if you want to explore these possibilities with institutional sources. This financing may also have restrictive covenants that affect future funding, business operations and other things. Again consult with your attorney before entering into any funding arrangements with institutional sources.
Incubators and Accelerators. Incubators and accelerators provide new small business with mentors, advisers, and practical training on technical, business, and fundraising to help them get from idea to product launch and beyond. They also may provide small amounts of funding for small ownership positions. Accelerators provide mentorship to new ventures and generally operate 3- to 4-month “boot camp” style programs.
Crowdfunding. Crowdfunding is a way to fund a project or business venture through small dollars from a large number of people, typically over the Internet, and using social media. There are a number crowdfunding sites on the Internet (e.g., Kickstarter and IndieGoGo), The early crowdfundng sites were only allowed to operate on a donation or reward basis, by offering a product, discount, or other inducement in exchange for money. The Jumpstart Our Business Startups Act (JOBS Act) (Pub L 112–106, 126 Stat 306) established a new crowdfunding exemption from registration under Securities Act §4(a)(6) (15 USC §77d(a)(6)). This exemption will allow companies to issue securities in exchange for contributions from people who don’t qualify as “accredited investors.” Consult with your attorney and/accountant if you are considering using crowdfunding. Entrepreneur Magazine published an article in October 2013 titled“Top 10 Crowdfunding Websites”. The article groups the companies into Reward, Debt, and Equity categories.
As I have said a number of times in this posts consult with your attorney, accountant, and business consultants before making a decision as to which funding sources to go after. It is very important that you know the pros and cons of each of them.
If you have any questions or want more information leave me a comment or Email me with this Link.
Venture Capital. Venture capital investors (VCs) include those organizations with funds from private sources only and those that use both government and private funds to invest in businesses. Depending on their source of funds, VCs may make their investments in loans or convertible debentures or by preferred or common stock. VCs include private equity funds, small business investment companies (SBICs), and business development companies. You can find Entrepreneur Magazines list of “The Top 100 Venture Capital Firms” Here
Corporate Partners. Corporate partnering often involves debt or equity funding by a corporation and is quite often tied to a business relationship. It usually includes a contract of some sort but does not become a new entity. The goal for your business in this arrangement is funding and other help including your partner becoming one of your major customers or suppliers.
Institutional Sources. Commercial banks, finance companies, insurance companies, pension funds, and other institutional lenders are a major source of private financing. Funding is usually in to form of loans, but you may be able to negotiate the interest rate, and maturity Terms of the loan can also include warrants or other equity instruments that can help in the negotiation of interest, maturity, and prepayment. Consult with your attorney and/or accountant if you want to explore these possibilities with institutional sources. This financing may also have restrictive covenants that affect future funding, business operations and other things. Again consult with your attorney before entering into any funding arrangements with institutional sources.
Incubators and Accelerators. Incubators and accelerators provide new small business with mentors, advisers, and practical training on technical, business, and fundraising to help them get from idea to product launch and beyond. They also may provide small amounts of funding for small ownership positions. Accelerators provide mentorship to new ventures and generally operate 3- to 4-month “boot camp” style programs.
Crowdfunding. Crowdfunding is a way to fund a project or business venture through small dollars from a large number of people, typically over the Internet, and using social media. There are a number crowdfunding sites on the Internet (e.g., Kickstarter and IndieGoGo), The early crowdfundng sites were only allowed to operate on a donation or reward basis, by offering a product, discount, or other inducement in exchange for money. The Jumpstart Our Business Startups Act (JOBS Act) (Pub L 112–106, 126 Stat 306) established a new crowdfunding exemption from registration under Securities Act §4(a)(6) (15 USC §77d(a)(6)). This exemption will allow companies to issue securities in exchange for contributions from people who don’t qualify as “accredited investors.” Consult with your attorney and/accountant if you are considering using crowdfunding. Entrepreneur Magazine published an article in October 2013 titled“Top 10 Crowdfunding Websites”. The article groups the companies into Reward, Debt, and Equity categories.
As I have said a number of times in this posts consult with your attorney, accountant, and business consultants before making a decision as to which funding sources to go after. It is very important that you know the pros and cons of each of them.
If you have any questions or want more information leave me a comment or Email me with this Link.
