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T H E STA R T U P F U N D I N G G U I D E :
How should you fundyour startup?
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© 2014 WORRELL INC. @WORRELLDESIGN WORRELL.COM
As a startup, raising capital can seem like one ofthe biggest roadblocks to launching your product.
Here's a guide that can help you navigate the major funding sources and determine which options arebest for your new business.
BOOTSTRAPPING
The use of personal savings or early cashflow to fund a startup rather than seeking external capital in the form of
investments and loans.
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MORE CONTROL
Autonomy to grow your company at
your own pace and keep greater control
over its trajectory.
MORE EQUITY
Without investors, you’re ultimately able
to maintain greater ownership in your
company.
INCREASED FLEXIBILITY
The ability to change your direction on
a moment's notice, without waiting on
the approval of other investors.
PROS CONS
PERSONAL RISK
If you personally shoulder the finances
of your startup, all costs and losses
become your responsibility.
SLOWER GROWTH
Cashflowing your startup can result
in resource constraints that may
ultimately slow growth trajectory
of the company.
LACK OF SUPPORT
You may miss out on access to
knowledgeable investors and their
diverse networks and connections.
CROWDFUNDING
A new form of financing that enables startups to
raise funds through small contributions from a large number of individuals via
an online platform.
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PROOF OF CONCEPT
A successful campaign serves as
validation that there is demand in the
market for your product or service.
FREE PUBLICITY
Crowdfunding gives you free access to
media outlets that may be willing to
publicize your campaign.
MAINTAIN OWNERSHIP
This influx of early-stage funds may
delay or dissolve the need to raise cash
from other investors.
PROS CONS
LIMITED APPLICATIONS
This works best for raising small
amounts from many people, excluding
some service and large
equipment-based businesses.
EXTERNAL PRESSURES
Legal issues can arise if you are not able
to meet expectations on when your
product ships.
RISK OF EXPOSURE
You are required to disclose product
details, potentially giving competitors
information about your business.
ANGELINVESTMENTS
Individuals who contribute personal capital to an early-stage startup in
exchange for equity in the company.
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FLEXIBLE CAPITAL
Investments may range from a few
thousand dollars to millions, potentially
providing most of your startup capital.
ODDS OF SUCCESS
Angel-funded firms are more likely to stay
in business longer, experience significant
growth, and see higher rates of return.
CONNECTIONS
Angel investors are often experienced in
the field and can offer their expertise.
PROS CONS
LIMITED FUNDS
For additional funding, your angel may
be tapped, forcing you to raise money
through traditional VC firms.
LOSS OF CONTROL
Angel investors may expect to play an
active role in the decision-making
process in exchange for their
investment.
LOSS OF EQUITY
Angel investors take ownership stake in
your business, ultimately decreasing
your share in the event of an exit.
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http://hbswk.hbs.edu/item/6347.html?wknews=041910Harvard Business School Study:1
VENTURE CAPITAL
Venture capitalists (VCs) work for a corporate
entity, investing money on behalf of the
individuals or institutions they represent.
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MORE CAPITAL
VC firms provide large influxes
of capital, often with a minimum
investment in the millions.
MULTIPLE ROUNDS
Unlike angel investors, VCs often reserve
additional funds for follow-on
investment rounds.
CONNECTIONS
VC firms have vast experience, giving
them invaluable insights into what will
lead your organization to success.
PROS CONS
TIMEFRAME
VCs expect a return on their investment
during a specified timeframe, putting
pressure on your startup to turn a profit.
LOSS OF CONTROL
VC firms request a controlling stake in
your company along with board seats,
sacrificing equity and autonomy.
DELAYED SUPPORT
VCs often do not invest in early-stage
companies, but wait to invest once a
startup has a proven track record.
STRATEGICINVESTMENTS
Strategic investments, also known as corporate venture capital (CVC),
are investments made on behalf of a parent
company.
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MORE CAPITAL
CVC and other strategic investments
tend to be much larger than angel
and some VC deals.
RESOURCES
Startups may benefit from the
investing corporation’s resources in
commercialization, manufacturing
and marketing.
EXIT OPTIONS
Strategic investors provide an exit
strategy, such as licensing or acquisition,
early in the life of a new business.
PROS CONS
TIMEFRAME
Corporations are typically slower than
VCs in finalizing deals, so they may not be
ideal if you need quick access to capital.
LOSS OF CONTROL
An investing company will often lock
in a technology license or purchase
option at the onset of your relationship.
DISSUADES OTHER INVESTORS
Accepting CVC from one company may
close doors to resources that could be
secured from other interested investors.
INCUBATORS &ACCELERATORS
Accelerators and incubators aim to increase the success of startups by
offering capital, work space and mentorshipsin exchange for equity.
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VALIDATION
These programs can provide the first
signs of market validation, along with
the momentum and support needed to
attract additional funds.
OFFICE SPACE
These programs generally provide
shared office space and co-working
opportunities for your startup to use.
MENTORSHIP
These programs are often led by proven
entrepreneurs whose shared experiences
can increase the odds of your success.
PROS CONS
LESS FOCUS
At an incubator or accelerator, your
startup may be one of many, limiting the
attention and support that other forms
of investments may provide.
RELOCATION REQUIREMENTS
The caveat to office space is that you
may be required to relocate if accepted
to one of these programs.
LOSS OF EQUITY
In exchange for capital and mentorship,
you will be required to turn over a small
amount of equity.
GOVERNMENTGRANTS
A financial award that is given to a startup from federal, state, county or
local governments, private foundations, or corporations.
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MULTIPLE OPTIONS
In some cases, you can apply
for multiple grants within a year, giving
you multiple funding opportunities.
NO REPAYMENTS
A grant is a form of non-dilutive
financing and is generally given without
the obligation to repay.
CREDIBILITY
Winning a grant can serve as a stamp of
credibility that can be used as leverage
when approaching other investors.
PROS CONS
COMPETITION
There are often hundreds of startups
applying for a single grant, which can
make it difficult to obtain one.
APPLICATION PROCESS
Applying is a very time-consuming
process, requiring a significant amount
of planning, writing and research.
GOVERNMENT OVERSIGHT
A grant may require the recipient to
perform in accordance with strict
regulations.
© 2014 WORRELL INC. @WORRELLDESIGN WORRELL.COM
Ryan Broshar Confluence Capital Partners
Patrick Meenan Arthur Ventures
Toby Nord Carlson Ventures Enterprise at the University of Minnesota
Justin Porter Venture Center at the University of Minnesota
A special thanks our distinguished panel for
sharing their expertise on this subject matter:
© 2014 WORRELL INC. @WORRELLDESIGN WORRELL.COM