{"id":1347,"date":"2012-04-08T10:32:01","date_gmt":"2012-04-08T15:32:01","guid":{"rendered":"https:\/\/newstage.betterlifemaids.com\/?p=370"},"modified":"2012-04-08T10:32:01","modified_gmt":"2012-04-08T15:32:01","slug":"how-do-entrepreneurs-fund-their-young-companies","status":"publish","type":"post","link":"https:\/\/newstage.betterlifemaids.com\/how-do-entrepreneurs-fund-their-young-companies\/","title":{"rendered":"HOW DO ENTREPRENEURS FUND THEIR YOUNG COMPANIES"},"content":{"rendered":"<p><iframe loading=\"lazy\" src=\"http:\/\/www.youtube.com\/embed\/U470xXKfDyE\" frameborder=\"0\" width=\"640\" height=\"360\"><\/iframe><\/p>\n<p>We get asked all the time how a young business gets capital, ie money to get off the ground. It is a good question and the video above does a great job of describing how the vast majority of companies are funded. The truth is most businesses are started with the founders savings. If they plan things well, they will have enough &#8220;runway&#8221; that they will be generating positive cashflow from the business before they run out of capital. So for example at Better Life Maids when we started up, we budgeted for a short period of time before we were generating revenue. Pretty soon into the start up process we were generating positive cash flow (about 90 days), and we used this cash flow to continue our growth and expansion.<\/p>\n<p>Surprisingly the next most common source of funding for small businesses is credit cards. That sounds inherently dangerous financially, but it is a risk reward roulette that many of us play. If we believe in what we are doing and the potential upside to our new business venture, than credit cards are tapped into. In fact nearly all small businesses are started in some way or another with credit card funding and it is the single largest source of start up capital, so we entrepreneurs must have a lot of confidence in ourselves.<\/p>\n<p>Friends and family are the next most common source. When a young entrepreneur runs out of personal savings and has tapped their credit, hat in hand they turn to their friends and family. They ask them to role the dice with them in their new business venture in exchange for an equity stake in the business, a loan, or some other consideration.<\/p>\n<p>Everyone thinks they are going to get a bank loan to start a business. While some businesses are able to secure a bank loan, most are not. Why not? Well it&#8217;s really not in the banks best interests. Start up businesses are risky. The owners are usually new to business, their is no track record of success, and most importantly no secured assets to lend against. A small business can probably get a loan for a car, or lease equipment, or other sources of financing (with the owner as a co-signer), but they will not be able to get operating capital in the form of a loan, unless they are very convincing, and most of us aren&#8217;t.<\/p>\n<p>&#8220;What about grants?&#8221; While I assume they are available, I have never known any real business person that started a real business with grants. I am excluding them from the discussion, either out of my own ignorance of the topic, or because businesses that are started with grants are about as rare as ice in a volcano. If you want to start a small business, don&#8217;t count on grant money to do so.<\/p>\n<p>An area that the video neglects as a source of funding is peer to peer lending. Sites like <a href=\"http:\/\/www.prosper.com\">Prosper.com<\/a> or <a href=\"http:\/\/www.lendingclub.com\">LendingClub.com<\/a> allow entrepreneurs to pitch their ideas to an open market of investors. Often times many people will invest in these small businesses with the lending sites managing the loan. The lending site manages the loan and distributes the money to all the micro  investors. Right now this is a pretty small phenomenon, but I would expect it to grow.<\/p>\n<p>Another area not mentioned at all are Angel investors, wealthy individuals or groups of wealthy individuals that put their money into small companies in return for a convertible loan, or equity in the company. These investors bridge the gap between friends and family and venture capital. Angel investors are becoming more common and even have websites where prospective businesses can pitch their new ventures to lots of Angel Investors at once. One such site is <a href=\"http:\/\/www.ventureworthy.com\">VentureWorthy.com<\/a>. Their really is no set amount of money that makes someone an Angel Investor with investments ranging from a few thousand to a few million.<\/p>\n<p>Venture capital gets a lot of attention, but for the most part is above the scale of investment that most small business owners are seeking or need. It is an important part of the equation and many of the last decades greatest success stories have VC funding including Google, Facebook, &amp; Fedex. VC makes for exciting dreams, but it is not what most businesses are made of. Companies that receive VC are often forced to grow fast, and perhaps too fast so that they can eventually scale up to the size of the investment they received. In many cases, they are running out of runway very fast, and are forced to use that capital to keep laying concrete in front of them in hopes that they will be able to launch to profitability. VC money is hard to come by as these are professional investors, and the investment has to be large enough to merit their time and energy to be involved. They may take on a risky venture, but they are aware of the risks, and the potential upside. They will most likely seek a controlling interest in the business they fund.<\/p>\n<p>Truth be told, I am a firm believer in self funding a business, and even using credit cards only if you don&#8217;t have quite enough saved to make your dream a reality. Maintaining controls of the business allows you to see a larger return on your investment down the road. Seeking debt to start a small business may seem like the American way, but in fact, in my opinion can amplify a bad idea, and you can end up paying for it long after the business fails. Start small, grow revenue and reinvest when possible.<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>We get asked all the time how a young business gets capital, ie money to get off the ground. It is a good question and the video above does a great job of describing how the vast majority of companies are funded. The truth is most businesses are started with the founders savings. If they [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[11],"tags":[22,13,21,26],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.12 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>HOW DO ENTREPRENEURS FUND THEIR YOUNG COMPANIES - Better Life Maids Blog - Professional Green House Cleaning<\/title>\n<meta name=\"description\" content=\"Better Life Maids discusses the ways many entrepreneurs fund starting their own business.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/newstage.betterlifemaids.com\/how-do-entrepreneurs-fund-their-young-companies\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"HOW DO ENTREPRENEURS FUND THEIR YOUNG COMPANIES - 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