Raising Money Startup

Things to keep in mind while Raising Money for your Startup Business

There are several ways of raising money for your startup Business and I have mentioned all of the ways to raise money for your startup business on somewhere else on this Blog. This article is specifically focused on the various things that you should keep in mind before raising money for your startup business. But before that, Here is a short list of various ways to raise money for your startup.

- Personal Savings
- Family & Friends (Equity or Debt Finance)
- Angel Investors (Equity Finance)
- Venture Capitalists / Private Equity Players (Equity Finance)
- Borrowing from Banks & Financial Institutions (Debt Finance)
- Credit Cards (Debt Finance)

By and large there are 2 broad ways to raise money for your startup business & these are,

01) Debt Finance – Here you borrow money from family, friends, credit cards, banks and financial institutions to fund your Business.

02) Equity Finance – Here you sell the ownership (Equity Stake) in your Business to the Angel Investor or Private Equity Player (Venture Capitalist) to raise money for your Business.

I will discuss here the pros and cons of Equity & Debt Finance.

- Debt Finance – Pros & Cons -

The main advantage of Debt Finance is that, here you borrow money from someone else (Family, Friends, Relatives, Parents, Banks & Financial Institutions) so there is no risk of dilution of Equity (Ownership) in the company. You maintain the full hold on the management team of your company in this method of raising money for startup.

The main disadvantage of raising money by this method is that, we are raising money for the startup business and not for the already established business. So it is very very difficult to raise money by this method. Because when you start a new venture, you are new in the market having no record of past performance. Say for Example, If I had gone to the Investors before starting this Blog than it would be difficult for me to raise money for the debt finance.

And the another disadvantage of this method of raising money for startup is that, here you have to put your personal assets as a guarantee to secure the loan for your startup business. In case if you fail in your startup venture, which is very likely, you will loose all of your assets.

Debt Finance option works best for the established businesses.

- Equity Finance – Pros & Cons -

The main advantage of this method of raising money for startup is that, here you don’t borrow money from anyone but here you raise money in the exchange of equity ownership of your business so no need to pay back this money to the Investors because you have not borrowed it from anyone.

But again this method of raising money comes with disadvantages. And the main disadvantage is that, this method of raising money will dilute your ownership in your own Business and management control because you will have to give the new investor the seat in the board of directors.

Say for Example, if you agree to sell 40% Equity ownership of your business than it will dilute your ownership interest in the company.

Thus, you have to think before raising the capital that for which method of startup raising you want to go for?