Beth Ann DeBouvre entrepreneurs must not only have a good understanding of financial management. Like how to invest and also how much to borrow, but they must also know from where to get the funding for starting any new venture as well for ongoing business. They must also know about various financing options besides external financing, which mainly comprises. Borrowing money from some lenders like banks, credit unions, and also financial institutions. There are many other means of financing businesses that you will come to know about going through this article.
Beth Ann DeBouvre as the name implies this form of financing means tapping external sources for capital. These are tangible forms of financing that leads to immediate monetization of finances. External financing is most common among entrepreneurs, and also it includes many different types of financing, like Angel Investing, Venture Capital, and Buyout. Some entrepreneurs arrange for finance. By offering private equity or equity to large investors in exchange for capital that they put into the business.
You will hear about Angel Investors a lot in relation to entrepreneurship as entrepreneurs rely on them for business financing. Angel Investors not only put in their money into the business but also collaborate with entrepreneurs. And also guide them in implementing a successful business model. Angel investors engage in business financing as a means of doing good for society as well as to enter a wealth-sharing arrangement. With entrepreneurs who they feel have the potential to successfully implement game-changing ideas. Many Angel Investors are successful entrepreneurs themselves and mentor new entrepreneurs by playing the role of business managers. A large chunk of business finance comes from Angel Investors.
Venture Capitalists have professionally managed investment firms of their own that accumulate funds from private investors and also use it for investing in some business ventures. Unlike Angel Investors, Venture Capitalists do not use their own money for investing in new ventures, and also it is purely business for them without any intentions of social work attached to it. Individuals and also Trusts that have the capital and also intend to invest in new business ventures avail the services of Venture Capitalists to route the money to the business.
This kind of financing is an indirect way of arranging capital for businesses in which the entrepreneur sells his stake in the business to an individual or a group of investors. Another method entails some private equity firms picking up stakes in the busses while the entrepreneur continues to hold the majority stake. This kind of investment happens during the growth stage of business when the scope of profitability is very much in sight and not during startup.
Bootstrapping is an internal financing technique in which either the entrepreneur invests his own money or offers stakes of the business to individuals in exchange for their services. Also includes other techniques of garnering business finance by offering sweat equity to stakeholders and also employees, delaying payments to partners, etc. However, the techniques of bootstrapping are applicable when the need for funds is not very big because it comes in the form of small investments.