Financing Options for Small Businesses: Crash Course Entrepreneurship #16
TLDRThe video discusses various funding options for entrepreneurs starting a business, from bootstrapping with personal funds to Loans from banks or micro-lenders. It also covers crowdfunding platforms like Kickstarter and equity crowdfunding, where backers receive rewards or ownership stakes. More traditional startup investors like angel investors and venture capitalists are explained as well, providing capital in exchange for equity. Each option has tradeoffs between retaining control versus getting expertise or more funds upfront. The video aims to overview the landscape so entrepreneurs can evaluate what's best for their needs and priorities.
Takeaways
- ๐ It can take a significant amount of money to start a business, so funding is often needed early on
- ๐ฏ Friends, family and "fools" invested $60 billion in startups in 2014, 3x as much as angel investors
- ๐ค Crowdfunding lets entrepreneurs get funding while keeping company ownership
- ๐ Asking friends/family for funding allows you to retain ownership, but risks relationships if you fail
- ๐ฆ Getting a bank loan can be difficult without proof of revenue or assets, so build relationships at your bank over time
- ๐ฐ Angel investors and venture capitalists provide lots of cash but want ownership in return
- ๐ Accelerators help grow companies fast but often want ownership too
- ๐ Grants provide money without repayment or giving up ownership, but can have strict requirements
- ๐ค Consider all financing options - friends, family, crowdfunding, investors, banks, grants etc.
- ๐ก Financing a startup is tricky - use your connections and explore all options
Q & A
What are the three main sources of early funding for entrepreneurs?
-The three main sources of early funding for entrepreneurs are Friends, Family, and Fools (FFF). These people tend to believe in the entrepreneur the most with the least amount of evidence.
How much money did the three Fs invest in budding entrepreneurs in 2014?
-In 2014, the three Fs invested $60 billion in budding entrepreneurs, which was three times as much as angel investors invested.
What are some tips when asking the three Fs for funding?
-Some tips are: ask for a specific amount for a specific goal, show your investment and commitment, communicate the full plan and risks upfront, and consult an attorney to structure the deal properly.
What are some advantages and disadvantages of crowdfunding?
-Advantages include keeping full ownership, getting funding and validation, and building a customer network. Disadvantages include it being a lot of work to run a successful campaign and the risk of overpromising rewards.
Why might it be difficult for entrepreneurs to get a bank loan?
-It can be difficult because entrepreneurs often don't have many assets or a history of stable revenue and profits over time to demonstrate they can pay the loan back, which banks want to see.
What do angel investors and venture capitalists invest in?
-Angel investors focus on early-stage entrepreneurial ideas and invest less than $100K. Venture capitalists take more risk, invest much more money, and focus on startup companies with the goal of larger profits later on.
What are some advantages and disadvantages of taking investment financing?
-Advantages include getting a lot of cash upfront and gaining expertise/advice. Disadvantages include having to give up ownership and control of the company.
How does equity crowdfunding differ from rewards-based crowdfunding?
-Instead of getting rewards, equity crowdfunding investors receive ownership stakes. But equity crowdfunding campaigns tend to raise less money, and there are more regulations.
Why can grants be difficult for entrepreneurs to obtain?
-Grants often have strict requirements on what the money can fund and come with reporting/measurement obligations, which can divert focus from core business activities.
What's the bottom line takeaway on financing startups?
-Go where your connections lead, whether that's friends/family, angel investors, bankers, or the internet. There are pros and cons to every approach.
Outlines
๐ Funding Your Dreams
This paragraph discusses different funding options for entrepreneurs starting a business, including asking friends, family and fools; crowdfunding platforms; bank loans; angel investors; venture capitalists; accelerators and incubators; and grants. It weighs the pros and cons of each approach.
๐ Crowdfunding Platforms
This paragraph provides more detail on crowdfunding platforms like Kickstarter and IndieGoGo. It explains how they work, the benefits of using them, and some best practices around setting funding goals, offering rewards to backers, and managing a campaign.
๐ Other Financing Options
This final paragraph covers additional financing options like bank loans, angel investors, venture capitalists, accelerators, equity crowdfunding, and grants. It compares the advantages and disadvantages of each in terms of money provided, payback terms, loss of ownership, and other considerations.
Mindmap
Keywords
๐กBootstrapping
๐กSeed funding
๐กCrowdfunding
๐กAngel investors
๐กVenture capitalists
๐กAccelerators
๐กBank loans
๐กGrants
๐กMicroloans
๐กCapital structure
Highlights
It took $10,000 to launch my apparel line, Ghost and Stars
I needed to save up money through my other side-hustles, or I needed an investor
The three Fs invested 60 billion dollars in budding entrepreneurs in 2014. Thatโs right. Billion. With a B.
The disadvantage of asking everyone you know for money is that you might fail, and then youโve brought someone close down with you
Ryan opens by telling them his dream of Library on the Loose and shows them the picture of the truck online
Sounds awesome, right? You get funding, validation testing, and a customer network all in one
Maybe some platforms have higher success rates or tend to feature products like yours
Donโt fall into the trap of over-promising and under-delivering
It can be difficult to get a bank loan when we donโt have many assets or proof of stable revenue over time
The advantages of turning to investors is the ton of cash upfront, and the expertise from people who have already done what youโre trying to do
The more investment capital you get, the less ownership (like profits and voting rights to make decisions) you hold onto
Techstars, Y-Combinator, and Boomtown are accelerators behind some of the biggest startup success stories
Equity crowdfunding allows anyone to pledge funds, but instead of receiving rewards, they receive slices of ownership
You get money without having to repay anything or hand over ownership
Go where your connections lead you -- whether that be friends, angel investors, bankers, or yes, the internet
Transcripts
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