This video explains different sources of early-stage funding for businesses, including bank loans, equity crowdfunding platforms like SeedInvest and StartEngine, and donation-based crowdfunding platforms such as Kickstarter and Indiegogo.
What this video covers
The first source of funding is bank loans. Obviously, banks, as we know them, they’re at the worst numbers of issuing and financing to businesses since the 1940s.
The next source of funding is equity crowdfunding. Now, equity crowdfunding is when you are putting your venture up on one of those online platforms such as, for example, SeedInvest or maybe StartEngine or one of those other platforms that are connecting startups with accredited investors.
The next source is really donation-based crowdfunding or perhaps any type of crowed funding source that doesn’t require a contractual obligation, just like the one that you would find on equity crowdfunding. On the nation-based crowdfunding, which is the type that you would find on platforms like Kickstarter or Indiegogo, what you’re doing is you are creating a project, an initiative, and preselling your product or giving something in exchange for those people that are contributing something to you. Maybe you are giving them an item, or you’re basically giving them a product, or just to put something out there like a pair of shoes, or a book that you’re about to sell, or maybe something that is tangible.
The next source of funding is friends and family. Maybe you have your cousins, your uncles, your parents, your friends. They also call it the Friends, Families, and Fools. But, again, I think that if you don’t want your Thanksgiving dinner to be a shareholder get-together, a shareholder meeting, where they’re going to be grilling you on: how is the evaluation? How has it been increasing over the last week?
Then you have the angel investors. The angel investors are not the ones that have on LinkedIn the angel investor title. Those are the ones that are going to waste your time, which are just going to be putting a $5,000 check in your business. Angel investors are those that are either senior executives that have an idea or have domain expertise on what you’re doing or perhaps successful entrepreneurs that just exited their business and that are now investing and using this as a way to pay it forward.
Next, you have the angel groups. In essence, angel groups are a way in which those angel investors are coming together and grouping their investments to invest in your business. Now, angel groups are investing in different ways nowadays. They’re either investing via a special purpose vehicle, which is a vehicle like an LLC that they use to group them all, and invest, and count as one in your cap table, which is that ledger that keeps track of who owns what part of the business – essentially, who owns what piece of the pie or what kind of equity.
Next, we have the startup accelerator programs. Those are like Y Combinator, Techstars – those are the best, and essentially, you’re getting a small amount of money. It typically ranges between
0,000 all the way to
00,000. What happens is that you’re giving them in exchange 5%-10% of equity in your business, and you’re committing to spending three months with them, perhaps in the Bay Area or in New York or wherever they are based to have them help you in scaling things up, in plugging in their networks, and in their making introductions to investors, which happens in the form of Demo Days. Essentially, that’s the way accelerators work.
Next, you have the venture capital firms. Venture capital firms tend to come in a little bit later. Venture capitals invest in people, and they are going to take the risk of coming in at the early stage of the business. But what they want is to see that there is a product/market fit that you’ve been able to have a product in the market and validate it somehow.
The last source of funding is credit cards. But I would highly, highly not recommend that you do credit cards because it’s like the saying: once you pop, you can’t stop, and then it’s very hard to back-peddle from that.
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