Raising-CapitalRaising Capital For Your New Business

The process of raising capital to fund a start-up business or an early stage business can be a very complicated and intimidating experience for an entrepreneur or new business owner.  Yet, it is an experience an entrepreneur needs to confront to start or grow his or her business.  This brief summary is intended to hit on some key points that entrepreneurs, who are considering raising capital for their business, should consider.  There are a numerous legal and accounting issues and concerns a new business owner should consider when deciding to take a journey down this road.

Negotiations with prospective investors often focus on how much capital will be provided, when the capital will be provided, what type of securities or ownership interest in the company will be purchased, and at what price.  Thus, the process of raising capital to fund a start-up can be  complex, intimidating and sometimes frustrating for a new business owner or entrepreneur.  More often than not, however, entrepreneurs who are serious about starting or growing a business have to manage the process of raising capital.

A common mistake new business owners make is raising too little or too much capital. When a new business owner mis-budgets the actual capital needs of the business, he or she often loses credibility with prospective investor or lenders.

Sources for Raising Capital

There are many different sources of capital.  Generally, they will fall into two primary categories:  (1) debt financing, which means that the entrepreneur or business borrows money and repays it with interest; and (2) equity financing, which means money is invested in the business in exchange for an interest in the ownership.  Sources of capital may include: a business owner’s own money/resources (credit cards, home-equity loans, savings, 401(k) loans, etc.); the money/resources of the business owner’s family, friends, key employees, etc; Small Business Administration (SBA) loans, microloans, general small business commercial lending, etc; Angels comprising of wealthy individuals, wealthy families, small investor groups, cashed-out entrepreneurs, etc.; Institutional investors who see hundreds of deals and only make a handful of investments each year.  The new business must be in a very hot industry and the owner or entrepreneur will need a proven track record.