It’s a common concern and question. How do I fund my new business? Where can I find seed capital? What are my options? They are good questions no doubt. Let’s talk about the options you have.
To start with we have to create a separation…two sides of the street if you will. When you boil it all down there are only two ways to raise capital for a business – you can do it through debt or equity. All the options fall under one of those two banners or on one of those two sides of the street.
Debt is simply getting a loan or line of credit and then you obviously make payments to the lender who you borrowed the money from. Startup debt options are out there but they are limited for obvious reasons because you haven’t proven yet that your business will be successful.
Equity is when you give up a percentage of ownership in return for money or seed capital. Think of Shark Tank on ABC. It’s a great example of what this looks like. Equity is always very difficult to obtain and is almost always more expensive than debt. However, when you’re one of the fortunate minority that can get this kind of seed capital, it can be very valuable.
I also talked about the most common seed capital debt options here. The most common debt options for start-ups are SBA loans, credit cards, ROB’s, Trade Credit, equipment financing, HELOC’s, P2P loans, and Contract Financing.
Details available here.
Equity options are primarily venture capital (VC’s), private equity, or angel investors. The percentage of start-ups who obtain funding from VC’s is incredibly low – well below 1%. Private Equity is a different kind of slippery slope and is not quite as common for seed capital purposes since they are normally bargain shopping for established companies at discounted prices. Angel investors are the most common form of seed capital on the equity side with one exception. It’s called FFF – friends, family, and fools. Most times these good people are considered angel investors but angels tend to be savvy and like the people you see on Shark Tank. FFF rarely fit into that category.
Best of luck in your search for your seed capital. We have some great seed capital options if you are looking for $25,000 to $200,000 in small business financing such as unsecured business loans or unsecured business lines of credit.