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How to Finance My Startup?

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How to Finance My Startup?

Before talking about how we are going to get financing for our startup, it is necessary that we initially clarify some terms and thus be clear about what type of capital you have to pursue. There are so many ways to invest in a startup that it can be confusing for founders to understand the differences between one modality and another. Here we explain how to finance a startup.You may also be interested in: MBA in Digital EntrepreneurshipAt IEBS Business School we have prepared this guide so that startup founders can fully understand what types of investment exist and the advantages and disadvantages of each of them.How to Finance My Startup?  UK Phone Number Database List  – Finance bro 1 1024x1024We will deal with the following points.The 3 main types of investmentBootstrappingEquityDebtHow to find potential investors for your startupDesign a presentation of your startup or pitch deckHow to contact investors and sell them my proposalINDEX OF CONTENTS 3 main types of investment to finance a startupIn short, to finance a startup we give you the 3 main forms of investment are Bootstrapping, Debt and Equity . There are other ways but they are extremely rare. We will discuss in depth what each of them are based on. Read on and discover how to finance your startup .

The path to technological and social disruption that ensures your businessDownload BootstrappingWhat is bootstrapping?This type of investment is based on using the founders’ own capital and that generated by the business to finance a startup.How to Finance My Startup? – giphy Bootstrapping should always be your plan A If you think about it carefully, raising capital should be the last of your priorities since it is not an end in itself. It is a means to develop a product that generates millions of euros in sales.However, there is a special prestige associated with those founders who raise thousands or millions of euros in funding rounds and that, seen from the outside, can seem like resounding success. Nothing is further from the truth, the companies that have followed Bootstrap capital (grow with their own savings) are not only giants, but they have 100% of the company and that allows them to act with absolute freedom.Therefore, do not lose focus. bootstrapping should always be your plan A.

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Advantages of bootstrappingSome advantages of this method are:It does not dilute the shares of the founders (dilute = decrease the% of the company that is in their name). As there is no purchase of shares by third parties in the company, 100% of them continue to reside in the founders.It reduces dependence on investors and maintains decision-making capacity. In a company, the decision-making capacity is usually directly proportional to the% of the company that is owned. As there are no investors with a percentage of the company, strategic decisions continue to be made by the founders.It makes your company more attractive to investors themselves . Bootstrapping forces you to be very capital efficient and that is exactly what investors want to see. They want to see a founding team that takes care of every penny of their money and can show that they can do a lot with a little bit.

Disadvantages of BootstrappingThere are certain startups (such as HardTech or some Saas) that require a very high initial investment volume and Bootstrapping may not be suitable if this is the type of startup you have. Equity or SharesWhat is Equity funding?Equity Funding or equity financing is the method of raising capital by selling shares of the company to investors. In exchange for this investment, shareholders receive ownership interests in the company.When these investors enter the very early stages of a startup and their figure provides additional value as an advisor or advisor, they are considered Business Angels .How to Finance My Startup? How does Equity Funding work? Bank Email List For an investor outside the company to buy a part of the company, we must first know how much the company is worth (we will review in this post the different ways to calculate the value of a company).Once we have that value, then we decide to sell a% of the company to an investor who pays the stipulated market price.MBA IN DIGITAL ENTREPRENEURSHIPLearn to develop and validate a business ideaI want to sign up!Equity Funding Example Imagine that you are the founder of the startup / company «EXAMPLE SL».The founders of EXAMPLE agree to raise $ 250,000 from an investor with a pre-money valuation of $ 1,000,000 (the value before adding the $ 250k check).In this way, investors buy 20% of the company (250k / 1,250k) and when it is sold, investors obtain 20% of the profits.

Advantages of Equity FundingThe main advantage is being able to access much higher capital to finance your venture and as a general recommendation, look for investors who have extensive experience in the sector in which your startup or company operates. That way you not only get the money, but mentoring and potential connection with relevant players in that industry.Disadvantages of Equity FundingThe biggest “disadvantage” of this form of investment is that you lose ownership of the company and consequently control over it.This will become a problem if you make successive stock sales or “financing rounds” that will cause you to lose control of your company little by little.This does not mean that it is a bad option to finance yourself, but that you have to know exactly what is the optimal moment to make this sale of shares. The most common is to start your company with the «Bootstrapping» methodology and when you have already reached Product-Market-Fit and want to start growing, it is when you obtain capital through Equity Funding.Debt What is debt?This is the “traditional” method of financing that has been traditionally used for hundreds of years. The idea is simple; a company receives capital and agrees to repay the amount. This commitment is called debt.How to Finance My Startup? – giphy Financing a startup: how does debt work?An investor (can be a bank, private investors, credit companies …) lends capital to the company with the expectation that the amount of capital and accrued interest will be repaid at a predetermined later date. The loan is generally “secured” by an asset that the lender can collect if repayment stops.Debt ExampleThe company EJEMPLO SL needs € 50,000 to start its activity. The co-founders take a loan from the bank and use their houses as collateral against the € 50,000 loan with the bank.

After a while (a few months so that the company is already profitable) the founders return the € 50,000 + Interest to the bank. However, if they do not return the loan to the bank, the bank will have the right to keep the properties placed as collateral (in this case the houses of the founders).When debt makes senseAs with equity, there are some scenarios in which debt is the most useful option for financing your business. Here are some of the situations in which debt of this type makes sense:When you need less than € 50,000 (it is the average amount that can be guaranteed)When you need the capital quickly (they are sources of financing that are usually quite available and can be liquidated quickly once we get the money back)When you need the money for a very concrete and tangible reason (for example, to buy computer equipment for our company).When you don’t want to dilute your stakes / ownership in your company due to the entry of external investors but you can’t grow through BootstrappingFinal investment mix Remember that generally the answer is not usually a single investment route. It is very likely that the final formula that ends up financing your venture is made up of a mix of multiple sources of investment . Almost all startup financing strategies are a combination of bootstrapping, debt, and equity at the appropriate levels during the appropriate times.Experienced founders and those who have already achieved multiple successes (the sale of their previous companies) do a great job of understanding the pros and cons of each type of financing and when they can use each of them to come up with the ultimate formula that maximizes its benefits.

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