Marie Wesselhoft on considerations for funding your new venture
Ventures evolve as they move through the Innovation Continuum from initial concept to market success. As the venture evolves, so does the funding strategy: founder cash; grants; angel investment; venture capital; debt financing; and etc. Building a strategy to effectively pursue the right kind of money at the right time can make all the difference for a new venture. Important considerations in building your funding strategy:
Other sources of funding – before building an equity investment plan, consider other sources of funding. These move you further along the innovation continuum, build value, become key milestones and validation, and give you traction. Consider personal investment; bootstrapping (credit cards and mortgages are still viable even in this market); friends and families; and other loans. Investors want to see that the founders have themselves made a personal investment in the business and made positive progress!
Capital requirements - how much capital do you need? It's important to know how much you need to develop your prototype, hire a research firm or launch your product. However, you need a continuum of funding that gets you through key milestones in your venture development, covers working capital and other needs, and helps you move through your estimated point of break-even.
Valuation – what is your venture worth? Once you have completed the financials and your plan, you can use that information to help determine your company valuation, an important step before you begin working with outside investors. Common valuation methods include: discounted cash flow, cost to recreate, market multiple, etc. More current methods also include the balanced scorecard, and stage of development, etc. And most importantly, target appropriate investors for your venture needs.
Exit – do you have an exit strategy? Your funding partners will expect a return on their investment. Be as specific as possible; for example, if you plan to sell your venture to a large company that provides complementary products and services, identify who they are.
This video presentation addresses various types of funding and uses current company examples.
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