When seeking seed funding, entrepreneurs must convince investors that their business idea has a viable future. They should include a brief demonstration of their product, as well as a detailed financial forecast. Although they should not focus on the short term, entrepreneurs should explain how the seed funding will help their business grow in the future. A brief financial projection of the first year will likely suffice, but the real focus should be on future growth. Entrepreneurs should avoid mentioning the short term when requesting seed funding.
There are two primary types of funding: debt and equity. Debt financing is used for short-term needs, while equity is used for long-term needs. Debt financing requires repayment of the principal amount, while equity can be paid out at any time. Angel investors are often interested in a more hands-on role in a company’s operations, and they may want equity in the company. Depending on the terms of the deal, angel investors can require as little as 10% equity in the company.
While many entrepreneurs come from corporations or universities, venture capitalists are not content with that model. Although corporations and universities provide the bulk of basic research funding, entrepreneurs understand that there are more risks involved, such as betting on unproven technology in a market segment where there is a high failure rate. Furthermore, the pay structure of most corporate entities limits their upside. The upside potential of VC firms is unlimited, since there are no pay caps.… READ MORE ...