9 out of 10 start-ups fail without a proper investment.
No matter how good your business idea is – you can’t get it off the ground without a capital. Now, there’s a large selection of financing options for founders. However, not everyone fits every concept. So, the opportunities and risks of financing are to be taken into account. Inadequate financial planning is still one of the most common reasons for a failed start-up. To avoid this, let’s see how our specialists use their knowledge and expertise in your business’ investment raise.
How Whales Ventures Helps
Bootstrapping is an independently financed company formation without any outside capital. Regardless of whether that’s possible for you or not – self-financing has advantages and disadvantages. Use equity, start lean, grow flexibly.
Benefits of bootstrapping
- With financing with a lot of equity, there is, above all, increased motivation: those who invest a lot themselves naturally want to get the best out of it and are, of course, proud to have managed it with their own resources.
- In addition, the largest part of the company remains with the founder and doesn’t become the investors’ property. So, young entrepreneurs have the greatest possible freedom of choice.
- Those who manage with little capital usually set up an efficient company that functions in a clearly structured manner.
Disadvantages of bootstrapping
- However, there is often a lot of pressure to make optimal use of scarce resources.
- A high level of entrepreneurial freedom also brings the risk of wrong decisions because founders are solely responsible here and work without the know-how of others.
Even if the entire venture cannot be financed with equity, it still provides a certain degree of security in the event of liquidity fluctuations and, moreover, creditworthiness.
- Funding through loans and credits
For larger purchases, a loan from the house bank is a method to raise the necessary capital to start a business.
- Convince the bank
A professional business plan and good preparation for the bank meeting are essential. If the project is well-developed, presented according to the business plan, and promises success, there’s a good chance of getting a loan. In principle, however, the house bank won’t do without a private collateral and a corresponding credit rating.
- Startup financing with venture capital
$156.2 billion were invested in US-based startups by venture capitalists in 2020
according to Pitchbook.
With a venture capital, investors provide founders with the appropriate capital depending on the development phase of their product or service. Investors often work as advisors for young entrepreneurs and also acquire company shares. The financial leeway increases, yet the founders are not only responsible for themselves, but also for the investors who now want to be updated on the state of development and expect constant reporting. After all, investors are responsible for the company’s failure, especially in the early stages of business development. They want to protect themselves accordingly. As a rule, investors only get involved in the later stages of formation once the risks are lower.
This form of funding works best for the computer, pharmaceutical, or biology start-ups that want to bring a promising product with great prospects for success and growth.
- Funding From Business Angels
Business angels can usually join the company much earlier. They support founders with their know-how, but don’ invest as much capital as venture capitalists. To this end, they act as advisors: young entrepreneurs can rely on the wealth of experience of business angels and use their networks and contacts, which often proves much more valuable than pure capital in the early start-up phase. And, business angels risk significantly more than venture capitalists because they invest during or shortly after foundation – at a time when success is by no means certain.
- Start-up funding from the crowd
Crowdfunding is an increasingly popular form of financing. Since the financial burden is distributed over many shoulders here, it is also referred to as crowd financing. Here are the types of crowdfunding:
- Reward-based crowdfunding
This form of crowdfunding is the most popular, especially in the creative industries. Donors receive gratitude for their financial support, which is more extensive depending on the amount awarded. The reward can be anything from a small thank you card to a version of the finished product.
- Equity-based crowdfunding
With equity-based crowdfunding, lenders become investors and receive a share in the company with which they also participate in sales. Investors usually aim for a later exit.
- Lending-based crowdfunding
With lending-based crowdfunding, lenders offer a loan with a fixed interest rate and a fixed term. For entrepreneurs, the main advantage here is that no banks have to be convinced to lend.
- Donation-based crowdfunding
Such crowdfunding is based on donations, so donors cannot expect any direct consideration. This form is most suitable for charitable projects.