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Obtaining Startup Funds and Working Capital

Many entrepreneurs are faced with a choice: to develop a business using personal resources or to attract third-party capital – in order to reach profitability faster. Investments are often required at the initial stages of project development when they are directed to the launch of the first sales. First of all, a credit repair business would need a starting capital to set up an office: rent the place, purchase the computers and software, and hire the employees. Moreover, it is also necessary to develop and launch a marketing campaign that will attract customers. Jin et al. supply that “an active social media presence increases the likelihood a startup will close the round, the amount raised, and the breadth of the investor pool” (2). Therefore, it is important to allocate funds for maintaining the social media channels of the business, as well.

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A good strategy to obtain necessary funding is equity financing – that is, an investment from a private investor in exchange for a stake in the company. This makes the investor a full-fledged co-owner of the business and gives them the opportunity to influence the management of the enterprise and receive dividends. Equity financing is also attractive for venture investors: if the business becomes successful, it will be able to earn a super profit, which can be measured in thousands of percent of the invested funds. He states that “the formation and development of venture capital has solved the problem of venture financing for small enterprises in the United States” (3). It is also beneficial if, in addition to money, the investor also brings their experience and connections to the project.

The first common source of funding that was considered is investment from friends or family, as it would allow the business to get the money on easier and more negotiable terms. However, after serious consideration, it was rejected due to the fact that personal relationships can affect the business severely, and maintaining both them and a business approach is too difficult and energy-consuming. Moreover, according to Mustapha and Tlaty, ” startup companies must use external financing during the early stages of the innovative project implementation” (1). Another source is bootstrapping, which is an appealing strategy, but operating a business in times of pandemic can prove to be very challenging and require additional funds that the business might not have yet.

Sources

Achibane Mustapha, & Jamal Tlaty, 2018. The entrepreneurial finance and the issue of funding startup companies. European Scientific Journal, ESJ, 14(13), 268. Web.

Fujie Jin, Andy Wu, & Lorin Hitt, 2017. Social is the new financial: How startup social media activity influences funding outcomes. Academy of Management Proceedings, 2017(1), 13329. Web.

Weishen He, 2020. The Relationship between Enterprise Financing and Enterprise Life Cycle. Advances in Management and Applied Economics, 10(5), 35–53. Web.

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StudyCorgi. (2022, December 7). Obtaining Startup Funds and Working Capital. Retrieved from https://studycorgi.com/obtaining-startup-funds-and-working-capital/

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StudyCorgi. "Obtaining Startup Funds and Working Capital." December 7, 2022. https://studycorgi.com/obtaining-startup-funds-and-working-capital/.

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StudyCorgi. 2022. "Obtaining Startup Funds and Working Capital." December 7, 2022. https://studycorgi.com/obtaining-startup-funds-and-working-capital/.

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StudyCorgi. (2022) 'Obtaining Startup Funds and Working Capital'. 7 December.

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