Finding the Right Source
of Funding for your
Finding just the right
financing to start or expand your company is a complex process that
involves uncovering sources of money, using the proper means and
evaluating whether the timing is good. If the economy is slow,
it's more difficult to raise cash — no matter how clever your
business plan is.
are several ways to initially fill your coffers including personal
funds, cash injections from family
and friends, loans, venture capital firms that specialize in financing
new businesses and wealthy
angel investors who have no institutional affiliation.
is often done through “rounds” over time
and may involve one or more sources. Expect to wait about six
months from initial contact to the transfer of funds.
Valuations also may rise between rounds depending on such
factors as increased numbers of customers or new products and
process, however, is complex and you want to make sure that the deals
you make are in your best interest. And at the
top of the list may be negotiating the amount of control
you retain in the company. After all, it was your idea and you
don’t want to lose ownership.
a quick rundown of the major sources of start-up financing and how each
can affect your ownership:
This is the
most common source and is often preferred because it lets you
and your co-founders maintain control. Most importantly, it
shows your commitment to the enterprise, which can
help you develop a strong position for later venture capital financing.
Another advantage is getting you into business
faster, without the delays that can accompany efforts
to attract outside capital. One source of personal financing is the
cash value of whole life insurance policies you may have. You
may have accumulated a considerable cash surrender value that
you can borrow against.
This is usually
a good source of money, if you are able to negotiate reasonable and
acceptable terms that relate to your control over the company
and the return that venture capitalists expect from their investment.
Some investors may insist on taking an active role in strategic
planning and company operations. Professional advice can really help in
these negotiations, particularly when bargaining power may not
be equal on both sides of the table.
Here you may be
able to get good terms, but be wary of unrealistic
expectations. Friends and angel investors may be unsophisticated and
have unbalanced portfolios and that can lead to friction and
intrusiveness during the volatile ups and downs that most
start-ups experience. This financing also tends to be
a one-time deal, so there's little chance of getting
them to boost their investments later.
federal and provincial agencies offer loans for new businesses
and you should investigate any that seem suitable for your
venture. In addition, you can sometimes find other
companies that may finance the development of a product in
exchange for either taking an interest in it or acquiring it at some
point. Former employers or industry peers can be tapped in
The rest of the story: Finding
the initial capital is just part of the process. You will also want to
best means of acquiring the money by choosing between
stock offerings, loans, mezzanine financing, and the like.
Moreover, timing counts. The current economic
climate always has a significant effect on how you
raise money, how much you get, and how fast you grow.
Call Ronald J. Cappuccio, J.D.,
LL.M.(Tax) at (856)
665-2121 for professional advice from the outset and
continue consultations during the process to help ensure you
get the best deal with the best terms. For example, proper
guidance can help minimize your tax bill and bring you through
a successful initial public offering when the time is right.
and signing the right deal takes good planning. The
success of your venture and continued control over the
business is at stake.
Ten Myths About Starting
broke, so it's a good time to start a business." New
ventures drain bank accounts fast, so plan on having at least two
year's worth of income in addition to start-up costs, which vary
depending on the business. Then, you can devote all your time and
energy without having to hold down a job at the same time.
need a little more practice before I launch my business." Many
people start new businesses based on their experience, but it's easy to
keep putting it off because you need "more practice." At some point,
you have to take the leap from "practicing" to "owning a business."
3. "I hate being told what
to do, so I'll start my own business." Like
it or not, business owners have lots of bosses — called
not renting an office so I don't need much seed money." Make
no mistake about it: Even if you're home-based, you need lots of money
for supplies, desks, phone service, memberships, license fees,
accountants, lawyers, business cards, web designers, consultants and
5. "I don't need a business
plan." Every business needs a plan, but
don't worry about creating the "perfect" one. Life changes and plenty
of things steer you off track. Create a flexible plan and review it in
6. "I don't need a marketing
plan." Get one right away. You might have
the best product or service in the world, but it won't sell unless
people know about it.
7. "My Web site will bring
in lots of business." Cyber-marketing is
effective only if your ideal clients are found on the Web and you do
Internet marketing. It's not automatic.
8. "I can do it all." Nonsense.
Nobody knows everything. Take classes, network, develop a support base
and hire professionals. New businesses take lots of time and energy. If
you try and do it all, you'll burn out. Take care of yourself, keep
your energy level up, and try not to spend every waking moment thinking
about your venture.
family and friends are all the support I need." Sure,
they're supportive, but they may only offer only warm and fuzzy
feedback. Call on objective parties to give you the absolute truth
about what you're doing right and wrong.
a business will be a breeze." New ventures
are almost always harder than the founders anticipate and most business
owners go through an "I can't do this anymore" stage. The successful
ones get beyond it. Try and ride out the discouraging times and lean on
your support network to get you through.
J. Cappuccio, J.D., LL.M.(Tax), a LLC Lawyer and Business
We can help you start a Limited Liability Company ( LLC )
which can be the best form of business organization, as well
as establish Corporations, S Corporations, Partnerships, Limited
Partnerships and Non-Profit organizations. We also can
represent you in Buying and Selling a business. helping
emphasizing Personal and Business IRS Tax Negotiation,
Offers In Compromise, and Installment Agreements. Zealous
representation in Tax Audits, Delinquent Tax, and Tax Collections
Issues. Experience fighting Employee and Independent Contractor issues,
Payroll Taxes, Tax Liens,and Tax and Labor Audits. Successfully handle
Wage Levy Release, Bank Levies and Seizures. NJ Tax Court, US
Tax and US Court of Federal Claims representation.
We also can
represent you in Buying and Selling a business.