Bootstrapping, Capital Raising and Loans: Which is best for my venture?
The age old conundrum, you really want to leave that well paid corporate gig and create something your own from scratch. Sadly these types of adventures cost money – sometimes lot’s of money.
It is often hard to know which path to take when it comes to getting the cash to back you up and build your dreams. There are usually three main paths that entrepreneurs take when it comes to doing this.
1. They bootstrap
2. They raise capital from investors
3. They take a loan from the bank
There are pro’s and con’s with each of these options so let’s break them down and look at what might best suit you and your circumstances.
Entrepreneurs that refer to themselves as bootstrappers prefer to use a mix of sales and savings to grow their business. The great thing about bootstrapping is that you get to maintain 100% of your capital, the downside is that it can quite often be a longer road to reach your goal. Bootstrappers need to be expert sales people, and as a founder of a business you should be selling all the time. As far as getting cash in the door goes, bootstrapping means that you can manage your growth and remain profitable pretty much from the very beginning.
Capital Raising is the popular choice for much of the startup world, specifically in the tech space. It costs a lot of money to build brand new innovative things and you need a team to do this. You really need to be surrounded by great mentors when heading down this path, as in return for their investment they will be taking a slice of your company, you do not want to get yourself in a position of getting ripped off. Having said that, capital backed startups usually grow faster, and have a higher chance of being acquired by larger businesses.
Loan from the Bank
A loan from the bank can be a great idea for a startup, more so if your business has a split of online and offline sales structures. There are many different structures when it comes to business loans and a banking advisor can help you choose the right one. A loan allows you to keep 100% of the company and pay the amount back over a period of time that matches in with your cash flow in the business. Be careful when it comes to the interest rates and research these properly, you don’t want to get a raw deal here either and pay double what you are borrowing back. Having a loan with the bank can also get you better access to some of their other services and offerings they have for business customers.
Disclaimers: Any advice does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you.
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