How to Raise Venture Capital, Essay Example

Small business owners often find it difficult to raise sufficient capital when first commencing business operations. This is often due to the fact that they have no credit history, insufficient assets and insufficient revenue projections for a bank or investor to lend them money. If you have a reasonable credit history the bank will often provide an unsecured loan.  If you use the equity in your property they may also advance  you monies on the basis of a secured loan.  Hence start-up businesses often use an initial injection of their own monies based upon a combination of secured and unsecured loans. In addition with a good personal credit rating you may have a number of credit cards you can use but you will need to factor in the large interest payments on any outstanding balances.

Grants are another useful form of early start-up funding ” first step in raising capital is to go to apply for all business grants that you may qualify for. You can search the Internet, inquire with the Small Business Association (SBA)” (chezfat, 2010).  Another possibility is by using Venture Capital firms who may advance you money for a % ownership in the business. These firms look for a sound business plan  and a management perspective that has a high potential for providing an adequate return on their investment. ” Venture capital firms are owners; they hold stock in the company, adding their invested capital to its equity base.” (Bizmove.com, 2010). This concept differing from Banks who merely loan you the money.

Bootstrap Financing ” is a method of making a business out of meager or nothing at all or in other words, with negligible outside capital.” (Equity Finance.ca, 2010).  This is one of the cheapest ways of raising finance for your business but it is also very high risk.  Most of the money invested comes from your own private sources of funds and one of the dangers is that you have insufficient capital for expansion or growth of your business should the venture become successful at an early stage.  Trade Credit is another example ” wherein you could find a supplier to expand trade credit and let you order goods on a term. In case you were able to sell goods before the term is due, then it means that you have just produced cash flow without using any cash from your business’ pocket.” (Equity Finance.ca, 2010).

Works Cited

Bizmove.com. (2010). How to Raise Venture Capital Money. Retrieved 8 9, 2010, from Bizmove.com: http://www.bizmove.com/starting/m1j.htm

chezfat. (2010). How to Start Raising Capital For Business. Retrieved 8 9, 2010, from Ehow: http://www.ehow.com/how_5356757_start-raising-capital-business.html

Equity Finance.ca. (2010). Bootstrap Financing – A Great Way to Become Successful. Retrieved 8 9, 2010, from Equity Finance.ca: http://www.equityfinance.ca/business-financing/bootstrap-financing-a-great-way-to-become-successful.html