Start Up Equity is the funds that are required by a business enterprise for meeting its initial expenses for starting a business. These early costs are typically spent on intangibles and, therefore, bank finance is rarely available. However, there are options that a start up entrepreneur can consider.
Bootstrapping
Ploughing in your own resources. This has the advantage of letting the entrepreneur focus on his business without concerning himself about the views of his investor. The promoter also avoids dilution of ownership.
Friends and Family
Commonly referred to as ‘hot pockets’, they are often the first external investors. Funds are usually in the form of unsecured loans.
Angel Investors
High Net-worth Individuals (HNI) invest in start-up equity looking to make a profit at the time of exit from the company. The promoter can approach an angel investor only if he has a clear road map of when the business will break-even, when the angel can exit and what will be his return on investment.
Venture Capital
Venture capital is organised funding and usually involves disbursement of funds owned by others not by the organisation. Like angel investing, this is a formal arrangement including execution of contract documents.
Both, angel investing and venture capital involve dilution of owner’s equity and representation for the investors in the management of the company.
