Knowing your funding options

We feel it is crucial for entrepreneurs and business owners to be well equipped with the knowledge and understanding of their funding and investor options. 

Types of Capital

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Venture Capital

Venture capital is generally an equity minority investment in growth-oriented new and young companies. Venture capital can refer to funding in different stages: seed, startup, development & expansion, growth. Venture capital firms often add value to their investment by providing management support, partnerships and networks introduction, expertise and know-how sharing, sometimes even fundraising and marketing support.

Patient Capital

Patient capital is generally understood as capital invested in entrepreneurs, building companies and organizations that not only can solve tough problems like healthcare, water, housing, alternative energy, but also can grow sustainably in the long run in a market-based economy. Patient capitalists expect a return that is more in the 5 to 10 percent range in combination with verifiable social impacts, rather than the 35 percent return that venture capitalists look for.

Angel Investors Vs Networks

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Angel Investor

An angel investor is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. Angel investors are also called informal investors, angel funders, private investors, seed investors or business angels.

Angel Networks

An angel network is a group of people who invest their own money into entrepreneurial companies, in exchange for an equity ownership interest. These groups are formed to share research, information and to pool investment capital. Amount of funding by angel groups is still smaller than that of VCs.

Accelerators Vs Incubators

Startup founders looking to start off on the right foot often turn to a startup accelerator or startup incubator for help. Accelerators and incubators both offer entrepreneurs good opportunities early on. Founders get help to quickly grow their business and they often better their chances of attracting a top venture capital (VC) firm to invest in their startup at a later point.

Accelerators “”accelerate”” growth of an existing company while incubators “”incubate”” disruptive ideas with the hope of building out a business model and company. So, accelerators focus on scaling a business while incubators are often more focused on innovation.

 

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Accelerators

Accelerator programs usually have a set timeframe in which individual companies spend anywhere from a few weeks to a few months working with a group of mentors to build out their business and avoid problems along the way. Y Combinator, Techstars, and the Brandery are some of the most well-known accelerators. At the end of an accelerator program, you’re likely to see all the startups from a particular cohort pitch at some sort of demonstration day (often shortened and referred to as a demo day) attended by investors and media. At this point, the business has hopefully been further developed and vetted.

Incubators

Startup incubators begin with companies (or even single entrepreneurs) that may be earlier in the process and they do not operate on a set schedule. In most cases, startups accepted into incubator programs relocate to a specific geographic area to work with other companies in the incubator. Within the incubator, a company will refine its idea, build out its business plan, work on product-market fit, identify intellectual property issues, and network in the startup ecosystem. A typical incubator has shared space in a co-working environment, a month-to-month lease program, additional mentoring, and some connection to the local community.

Grant Vs Government Funding

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Grant

A grant is money that is given to a person, business or corporation from federal, state, county or local governments, or private businesses or corporations. Grants do not require repayment of any kind. It is most definitely an attractive financial consideration for entrepreneurs and small or online businesses with little cash available for start-up, growth or expansion. The key is finding the grants for which you qualify and then doing the nose-to-the-grindstone work to apply for the small business grant.

Even in the most economically challenged of times, the government is one of the best sources for grants.

Grants are often hyper-specific. While some are wide-ranging enough to apply to plenty of small businesses, especially among the corporate programs, many target a very narrow selection of categories only. And whether it’s specific to certain industries, locations, demographics, or all of the above, you can bet that grant is also limiting in how you can use its funds. Unlike with a loan, with a grant you’ll have a set of guidelines to follow—or you risk having to pay it back.

Government Funding

Government funding refers to financial assistance received by non government entities in the form of federal, state, or local government grants, loans, loan guarantees, property, cooperative agreements, food commodities, direct appropriations, or other assistance. The government backs, funds, runs, or otherwise supports a number of programs that can help you find growth capital, and sometimes even startup funds, for your business.

Government programs that offer startup capital are an excellent way to source funding for your business. You are required to submit a plan that can be accepted by the grant committee. Once your plan has been scrutinized and approved, you will be provided with the funds to start up your business.

The government provides business finance, support, grants and loans to help small businesses gain stronger footholds. There are also national business support programmes. The government is more than willing to help new businesses get started with loans, tax incentives and – in some cases – even grants.

Seed Stage, Early Stage and Late

Understanding and being familiar with the terminology of your funding stage is crucial when approaching investors.

Seed

Seed funding is often referred as the first round of venture capital financing a company obtains, in exchange for a minority equity stake.

Early

Early-stage funding is often referred as the two funding rounds following seed.  These are called Series A and Series B.

Late Stage

Late stage funding is often referred as Series C and onwards funding rounds of more established companies.

Want to learn more?

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