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Funding Fit

Understand what financing sources are a good fit for your company . . . and vice versa

From a family loan to a bank loan to venture capital, different types of financing are appropriate for different types of companies and stages of their development.  The ‘funding fit’ is everything.  Here’s how I look at the match-up.

Source

Criteria

Fit

Self-funding

Vision and ability you believe in

The best way to get started if you can swing it

Friends & Family

Vision and ability they believe in

The time-honored startup seed funding route

Customer-sponsored

Reputation with customers

Persuading customers to pay for development provides built-in validation of what you’re doing.  Works best b2b situations where you’re solving a critical customer need and providing them with first access to a competitive advantage.

Angel Investors

Reputation and common vision

Angels are wealthy private investors.  It’s best to work with someone who knows your space well or invests in startups regularly and has a great reputation with other entrepreneurs.

Bank Loan

Two ways to repay

Borrowing from a bank is easy, they say.  Just show you don’t need it.  In other words, show that you have the income to service the debt payments and assets you can pledge that can be liquidated to repay should something go wrong.

Venture Capital

Awesome team and validated, highly scalable business model

VCs invest in startups, not small businesses.  There’s a world of difference.  You need to show traction in a business model that can scale to at least $20 million of revenue in 5 years and $100 million in 10 years. 

Private Equity

Proven team and business model

The P.E. guys and gals are looking for proven businesses that yield predictable revenue growth, profit margins, and free cash flow . . . or that can be quickly turned around to produce such. 

 

This blog post is being simultaneously published on Startup Finance and CFOwise, the outsourced CFO solutions company.

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