Financing Options for Small Businesses: Crash Course Entrepreneurship #16

CrashCourse
4 Dec 201910:55
EducationalLearning
32 Likes 10 Comments

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
  • 😀 It can take a significant amount of money to start a business, so funding is often needed early on
  • 😯 Friends, family and "fools" invested $60 billion in startups in 2014, 3x as much as angel investors
  • 🤔 Crowdfunding lets entrepreneurs get funding while keeping company ownership
  • 😊 Asking friends/family for funding allows you to retain ownership, but risks relationships if you fail
  • 🏦 Getting a bank loan can be difficult without proof of revenue or assets, so build relationships at your bank over time
  • 💰 Angel investors and venture capitalists provide lots of cash but want ownership in return
  • 🌟 Accelerators help grow companies fast but often want ownership too
  • 🔍 Grants provide money without repayment or giving up ownership, but can have strict requirements
  • 🤝 Consider all financing options - friends, family, crowdfunding, investors, banks, grants etc.
  • 💡 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
00:00
😊 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.

05:02
😃 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.

10:03
😉 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
💡Bootstrapping
Bootstrapping refers to launching a business with little funding, relying instead on one's personal resources. As mentioned in the opening of the video, the host started her apparel business with $10,000 of her own money, indicating bootstrapping. Bootstrapping is a common approach for entrepreneurs starting out.
💡Seed funding
Seed funding means the initial capital used to start a business, often coming from the entrepreneur's personal network of the "three Fs" - friends, family and fools. The video cites research that this group invested $60 billion in startups in 2014, making them an important early source of funds.
💡Crowdfunding
Crowdfunding platforms like Kickstarter allow entrepreneurs to raise funds from a large number of small investors online. This method allows entrepreneurs to retain full ownership. The video describes both the process of reward-based crowdfunding as well as equity crowdfunding.
💡Angel investors
Angel investors are wealthy individuals who provide capital to startups, usually in exchange for ownership equity. They typically invest less than $100K in early stage companies compared to venture capitalists. Angel investors offer money as well as mentorship to entrepreneurs.
💡Venture capitalists
Venture capitalists are professional investment firms that provide substantial funding to startups in exchange for equity ownership, hoping for high returns in the future. They invest more than angel investors. The video cites their appetite for risk and high growth as advantages.
💡Accelerators
Accelerators like Techstars and Y-Combinator offer structured programs, mentors and resources to help entrepreneurs quickly validate and scale up their startups. Access to their networks and capital often comes in exchange for some ownership.
💡Bank loans
Bank loans are debt financing options for startups to access capital, which needs to be repaid on a fixed schedule with interest. Banks prefer seeing stable financials and assets, so loans may be difficult for early stage startups without a track record or collateral.
💡Grants
Grants are funds given by governmental or nonprofit groups to serve specific social causes or business goals without requiring repayment or equity. While advantageous, grants have strict requirements on use and reporting which can divert focus for entrepreneurs.
💡Microloans
Microloans are small, short-term loans extended by community institutions to help entrepreneurs in developing economies fund their ventures. They serve people ignored by traditional lenders. The video notes microloans help meet financing needs internationally.
💡Capital structure
A company's capital structure refers to the mix of debt and equity it uses to finance operations and growth. The video covers various sources of capital available to entrepreneurs, each with implications for ownership and control of the venture.
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. That’s right. Billion. With a B.

The disadvantage of asking everyone you know for money is that you might fail, and then you’ve 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

Don’t fall into the trap of over-promising and under-delivering

It can be difficult to get a bank loan when we don’t 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 you’re 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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