Funding Options for Early-Stage Companies

One of the most significant decisions an entrepreneur must face is how to fund their startup. With a number of options available, it is important to know the benefits of each in order to determine the best approach, because what may be good for one business may not work at all for another.

Bootstrapping

Many entrepreneurs start by being completely self-sufficient, essentially pulling their business up by the bootstraps and using existing resources to fund it. This is a good option for lifestyle entrepreneurs who are able to focus the majority of their assets into the business. Bootstrapping is particularly appealing to those entrepreneurs who want to maintain full control of all facets of their business. However, it can also be risky and limit growth based on the funding they are able to scrape together.

Bootstrappers should be careful to not skip the important step of creating a business plan. Though some believe a business plan is only necessary for fundraising, every business, regardless of how it is funded, needs to have a business plan. Not only will it be readily available if and when funding is sought down the line, but it will serve as a road map for operating the company.

Friends and Family

“Convince those that you know first,” says Chris Sklarin, an Investment Manager with Edison Ventures. It is natural for entrepreneurs to approach their friends and family to help get their business off the ground. The good news is that family and friends generally don’t charge the types of interest a bank would, and they may demand very little in terms of ownership. In addition, securing money from friends and family is easy compared to other sources due to the implicit trust that already exists. Still, entrepreneurs should be aware that...

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