Startup Funding: Identifying Your Best Funding Option

Startup Funding: Identifying Your Best Funding Option


Originally published in YEC.

I am always meeting young entrepreneurs who are in need of capital to support the early costs associated with starting a business. With so many funding options out there, raising funds can be a confusing, and somewhat overwhelming exercise. Further complicating the issue, the type of startup funding you pursue will depend on the particular needs of your company, your company stage, and the specific milestones you hope to achieve.

That said, knowing the most common startup funding options gives you the foundation you need to develop your customized fundraising strategy. So here is a quick(ish) overview of the most common funding types for early-stage startups:

BOOTSTRAP

Okay, I realize this isn’t actually “fundraising,” but sometimes the best funding option is not to seek funding at all, and instead cut corners wherever you can and working on building your company from your personal savings. Besides saving you money, bootstrapping also helps you to focus on execution and building traction without outside interference. It’s also a means for avoiding dilution and yielding larger profit margins.

Need help controlling your cash burn? Contact Early Growth Financial Services.

EQUITY FUNDING

Equity funding is an umbrella term that refers to any means of financing your company in which you receive money in exchange for issuing shares of your stock. There are multiple methods for raising equity capital but, depending on how you raise this money, you could be giving up anywhere from 1-100 percent of your business. Equity rounds include:

DEBT FUNDING

Debt funding is also a viable funding option. With debt funding, you borrow cash that you will have to pay back, regardless of whether or not your company is making a profit. While you may choose to incur debt (i.e. borrow cash) from friends and family, there are other kinds of debt funding you could also pursue. The most common are:

Now that you have a basic understanding of the most common funding types, you’re ready to take your company to the next level. First outline exactly what that “next level” looks like—specifically, what milestones do you hope to achieve? Then use these milestones to create financial projections that you can use to calculate how much funding you will need and what funding type is the best bet for your company.

Not sure of the best startup funding option for your business? Tell us about it in comments below or contact Early Growth Financial Services for help and support.

David Ehrenberg is the founder and CEO of Early Growth Financial Services, an outsourced financial services firm that provides small to mid-sized companies with day-to-day accounting, strategic finance, CFO, tax, and valuation services and support. He’s a financial expert and startup mentor, whose passion is helping businesses focus on what they do best. Follow David @EarlyGrowthFS.

The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, the YEC recently launched #StartupLab, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses via live video chats, an expert content library and email lessons.

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