The Many Faces of Start-Up Financing All entrepreneurs face a similar challenge in the infant stage of their new venture: raising capital. While successful companies in their adolescent years can display steady cash flows and solid customer bases to potential investors, companies in their initial stages often cannot. This poses the challenge of obtaining capital sources from entities that may or may not have many reasons to believe in a new company’s ability to perform. However, despite the extensive challenges, there are multiple potential sources of capital that entrepreneurs can strive to obtain. Whether relying on smaller players like friends and family or crowd funding, or reaching out to larger, institutional investors such as angel investor networks or venture capital firms, business owners do have options when it comes to finding the capital they need to get their business off the ground. However, some routes make more sense than others depending on the specific company’s situation and objectives. Typically, a new business begins with something very simple: an idea. Sometime the individual spends years developing and tweaking the idea, and other times it simply comes to them in an instant. However it comes, once it does the entrepreneur needs to begin turning that idea into a more tangible concept. This almost always requires capital, whether for manufacturing a product, developing software, or hiring outside consultants to help develop the idea. There are many ways to acquire this capital. According to TechAloo, 63% of start-up phase funding comes from self financing and friends and family, 22% from banks, 9% from state finance corporations, 3% from angel investors, and another 3% from venture capitalists (See Exhibit 1).
Initially, the new business owner typically begins by investing his or her own cash and assets into the business. Savings