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Intro: A Guide to Startup Capital for Tech Businesses

Intro: A Guide to Startup Capital for Tech Businesses

Wednesday, May 11, 2016/Categories: business-tips

Having a great business idea and building a great business are two entirely different things. If you happen to have leadership skills, a sound business plan, a marketable opportunity, and a way to monetize your work, you still need the capital to get it all started.

Capital is the cash that kickstarts your operation. It’s the gas for your startup. You’re not going to get far without it.

So where do you begin? How do you get the initial funding you need to get your business going? It can be tricky, which is why we’re taking the next few weeks to focus on startup capital and how to get it.

We’ll talk to investors and business advisors about…

  • How to think about fundraising.
  • How to pitch your business.
  • Whether going after equity capital is a good idea.

We’ll also feature businesses that have been through the process of finding investors, as well as a few that decided to build up capital in other ways.

Of course, once you have your capital, you’ll want to protect it with technology business insurance. We’ll touch on that, too.

If this is your first time thinking about startup capital, below is some information to get your wheels turning.

What Is an Angel Investor? What Is Venture Capital? (And Do You Need Them?)

The terms “angel investor” and “venture capitalist” are popular among tech startups. A lot of first-time business owners tend to pin their hopes on getting funded this way.

What do these terms mean? Here’s a brief breakdown:

  • Angel investors are those who invest their own money into businesses. Generally, they’re driven by the idea behind the business and tend to invest lower amounts in a business’s earlier stages.
  • Venture capitalists (and VC firms) usually manage other people’s money to invest in high-growth businesses. They generally invest larger amounts, but for more control and stipulations.

For some businesses, going after investors may make sense. In future posts, we’ll highlight the key pros and cons of angel investors and VCs, as well as the differences between them and how they operate.

Most tech startups will also want to consider other ways to raise capital, including presales, borrowing, or a number of techniques that don’t rely on trading away ownership. Often, this ends up being much more sustainable in the long term.

A Quick Look at Capital Stats

Here are a few statistics that should give you some context about how startup capital works:

  • The average small-business owner uses $10,000 - $80,000 in startup capital, according to the Small Business Administration (SBA).
  • Small business bank loans make up 51 percent of small business financing, according to the SBA.
  • 14,300 U.S. companies are backed by private equity, according to the American Investment Council.
  • $60 billion in venture capital was deployed in 2015, according to a PwC/NVCA MoneyTree Report based on data from Thomson Reuters.
  • 99.95 percent of entrepreneurs will not get VC at startup, according to Forbes contributor and MBA professor Dileep Rao.

However you do it, financing your new tech startup is no easy task. Check back here for more tips and advice, and get a better idea how you can turn your great idea into a real working business.

In the meantime, here’s some helpful information on startups: “3 Startup Lessons from the University of Cincinnati’s Small Business Institute” and “4 Contracts Every tech Startup Should Have on Hand.”

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