There are a few avenues to explore when funding a new project or start-up venture including some traditional and some not so traditional routes…
Often the founders of a business will drip feed cash themselves into their venture for development although this obviously has a limited life span.
Some founders are able to tag a new idea onto an existing business accepting that there will be losses to be funded in the short term in the hope that this new venture will become self funding and eventually a profitable business in its own right.
Where personal resources don’t allow, banks will listen to requests for seed funding, usually in the form of a small overdraft but this will need to be backed up with a strong business plan and a demonstration that the driving force behind the project is fully committed to the venture.
Ideally the founders will be skilled enough to take the idea forward with a strong history in the field in which they are exploring.
Whilst it is not always true, a bank may look for a reciprocal investment by the founder to demonstrate that they are committed to making the venture work.
Crowd funding sites are platforms designed to match a pool of investors with an investee company. Whilst certain of these providers require a trading history, some are created to fund start up companies to develop ideas and products to market. One such site is Kickstarter which brings together numerous investors based on their interest in the product being launched rather than that of a financial return on their investment.
A company may list on the site and offer incentives to the investors rather than an equity stake or a fixed return on investment. This may be perhaps a first edition of the product once developed for a minimum ‘investment’ of say, £100.
Similar sites exist whereby an equity stake in the company is given in exchange for funding.
Venture capital usually follows on from seed funding but can also be used to propel an early stage project or idea forwards. This is usually expensive in terms of the amount of equity forsaken or rates of return on debt which reflects the risky nature of the investment.
Venture capital usually comes through an institutional lender who will often be willing to fund projects to a higher degree than other funders might at this stage.