Source of Funds

• Capital is a crucial element in the process of creating new ventures
• Raising the money to launch a new business venture has always been a challenge for entrepreneurs.

The “Secrets” To Successful Financing:

When searching for the capital to launch their companies, entrepreneurs must remember the following “secrets” to successful financing:

• Choosing the right source of capital can be just as important as selecting the right form of ownership or the right location
• The money is out there; the key is knowing where to look
• Raising Money Takes time and effort
• Creativity Counts
• The World Wide Web puts at entrepreneurs’ fingertips vast resources of information that can lead to financing; use it
• Be thoroughly prepared before approaching potential lenders and investors
• Plan an exit strategy
• When capital gets tight, remember to bootstrap

Layered Financing

Rather than rely primarily on a single source of funds as in the past, entrepreneurs must piece together capital from multiple sources, a method known as layered financing.

Equity Vs Debt

Equity Capital

1. Represents the personal investment of the owner(s) in the business and is carried as equity
2. It is called risk capital because investors assume the risk of losing their money if the business fails
3. It does not have to be repaid with interest like a loan does
4. This means that an entrepreneur must give up some ownership in the company to outside investors

Debt Capital

1. Must be repaid with interest
2. It Is carried as a liability on the company’s balance sheet.
3. It can be just as difficult to secure as equity financing, even though sources of debt financing are more numerous.
4. Can be expensive, due to interest.
5. Unlike equity, debt does not require an entrepreneur to give up his/her ownership interest in the company.

Source of Equity Financing (Equity Capital)

• Personal Savings
• Friends and Family Members (Be Careful)