Sources of Capital for your Startup

Every business needs capital, to operate, to grow or to take advantage of new opportunities and ideas. As a fellow entrepreneur once put it, every business must eventually be a customer funded business. The point of a business, over the long term, is to meet all its internal capital needs and throw off a profit. BUT, sometimes a business does not lend itself to bootstrapping in the early stages or a business needs an extra boost of capital to capture rapid growth opportunities. Determining the right type of capital for the business and then finding sources of that capital is a challenge for every entrepreneur, whether new or experienced.

If your business needs outside capital for either product or service development and launch or rapid expansion, there are only a limited number of ways to bring capital into your business. Potential sources of capital fall into one of these five categories.

  1. Investment Capitalselling equity for a capital infusion which includes angel capital, venture capital and crowdfunding for equity.
  2. Business Loan – including Bank or Micro- loans, non-traditional loans such as factoring, venture debt, friends and family loans
  3. Pre-selling product (crowdfunding for “stuff”).
  4. Grant / Contract Funding – programs such as the federal SBIR program or state programs, typically for deep research or socially desirable purposes.
  5. Personal capital or friends and family capital (your cash or FF cash).

There are many attempts to convince entrepreneurs that there is a magic bullet or some “novel” type of capital.  Don’t let new names confuse you!  Be aware of the type of capital that you are accepting can cause a lot of damage. So make sure you understand – what type of capital is best suited to your business and then make sure you really understand what you’re getting!

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