Starting a business is never an easy task as there are various hurdles to cross when starting a business. These challenges span across choosing the right financing option for the business given the financial and legal implications of the various financing options as well as how best to secure the interests of the founders and grow the business to a viable stage.
This article identifies the different types of financing options, their pros and cons as well as the legal issues to be considered when sourcing for financing.
What is Startup Financing?
Start up financing is basically the strategy adopted to fund a business from the start. Startup financing is majorly of two types- equity financing and debt financing.
Equity Financing
Equity financing is the issuance of stakes (stocks) in a startup business such as shares, in exchange for some form of value which could be money, services, facilities etc. Only companies can adopt equity-based financing.
One effect of equity-based financing is that it dilutes the control of the company. Thus, founders of a company who intend to retain complete ownership of the company should be mindful of the equity being conceded in exchange for funding. An example of a company that utilized equity financing is Dropbox, a cloud-based file storage and collaboration platform. Dropbox utilized equity and venture debt financing to support its product development and user acquisition efforts in its early stages.
To view the full article please click here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
