Fund your business
It costs money to start a business. Funding your business is one of the first — and most important — financial choices most business owners make. How you choose to fund your business could affect how you structure and run your business.
Determine how much funding you’ll need
Fund your business yourself with self-funding
Get venture capital from investors
Investors can give you funding to start your business in the form of venture capital investments. Venture capital is normally offered in exchange for an ownership share and active role in the company. Venture capital differs from traditional financing in a number of important ways. Venture capital typically:
- Focuses high-growth companies
- Invests capital in return for equity, rather than debt (it’s not a loan)
- Takes higher risks in exchange for potentially higher returns
- Has a longer investment horizon than traditional financing
Almost all venture capitalists will, at a minimum, want a seat on the board of directors. So be prepared to give up some portion of both control and ownership of your company in exchange for funding.
How to get venture capital funding
There’s no guaranteed way to get venture capital, but the process generally follows a standard order of basic steps.
- Find an investor Look for individual investors — sometimes called “angel investors” — or venture capital firms. Be sure to do enough background research to know if the investor is reputable and has experience working with startup companies.
- Share your business plan The investor will review your business plan to make sure it meets their investing criteria. Most investment funds concentrate on an industry, geographic area, or stage of business development.
- Go through due diligence review The investors will look at your company’s management team, market, products and services, corporate governance documents, and financial statements.
- Work out the terms If they want to invest, the next step is to agree on a term sheet that describes the terms and conditions for the fund to make an investment.
- Investment Once you agree on a term sheet, you can get the investment! Once a venture fund has invested, it becomes actively involved in the company. Venture funds normally come in “rounds.” As the company meets milestones, further rounds of financing are made available, with adjustments in price as the company executes its plan.
No treasure map necessary
When John and Kelly didn’t have enough money to open their auto repair shop, they got an SBA-backed loan to help start their business.