Thursday, September 21, 2006

So you don't want VC funding?

So you're starting your innovative new venture but you're not so keen to give away a share of your company in exchange for funding? Good for you! Despite the obvious benefits of Venture Capital investment into your firm, may entrepreneurs either opt not to or simply don't qualify for this type of funding. All is not lost and there are many ways for you to raise the necessary cash to start with.
Lets look at this process in the context of the various stages that you may face:

Stage I. When you've got nothing but an idea and ambition, you've got limited funding options:
1. Personal savings. Crack open the piggy banks and max out your credit cards.
2. Beg and borrow. Call rich friends and relatives.
3. Loan. Try getting a bank loan or credit union loan. Just remember that you'll have to pay this off continually.
4. Angel investors. Look for rich individuals who'll take the risk for potentially high rewards.
5. DTI and SEDA loans. The Department of Trade and Industry as well as SEDA provide a number of different loan schemes.

Stage II. Once you understand your market and have built a product that customers want, you have more options:
1. Customer investment/pre-sales. If your customers feel they need your product enough, they may invest in you.
2. Selling services. Have your team act as paid consultants and provide onsite services for the first few months of product implementation.

Stage III. By the time you have gone through the trials and tribulations of getting your product to work well, meet most customer needs, and address a sufficiently broad market, your options include:
1. Strategic investment. You may be able to find a strategic partner whose interests are aligned with yours.
2. Selling for survival. Do what it takes to close deals.

Stage IV. When you've got a great product, a business model that works, and a management team that is itching to take over the world, you will need big money. Here are your options:
1. Acquisition. It may be best to cash in some chips and become part of a bigger company.
2. Reverse merger. Consider this shortcut to an initial public offering (IPO). It gives you access to hedge funds and private equity.

Stage V. When your company has achieved critical mass with steady and predictable sales growth, it is time to consider an IPO. While you plan and prepare, you can consider this option. It doesn't require giving up an interest in your company:
1. Mezzanine financing. You can use high-interest debt financing to tide your company over until the IPO.


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