Explain the different methods of raising capital for startup or investment for example venture funds.
The venture capitalists can fund their own ideas. The founders of a certain business can contribute funds for business startups. Funding own ideas indicate that investors are willing to take risks.
Family and friends can be another source of business funds. As the family is aware of the talent, they will be willing to offer financial support. Friends can also be willing g to issue funds for a startup business (Ryu, and Kim 9).
Loans can also be a source of funds for businesses. Going for a loan shows that an investor wants to keep control of their business. Before taking a loan it is prudent to consider the collateral required and the interest rate. The investor must assess whether they are willing to comply with the terms.
Certain non-governmental institutions are also helpful in raising funds for business. The NGOs can offer proper guidance and financial support to investors. The market also has certain institution where investors can go to and pitch their own ideas. The entrepreneurial institutions can issue the capital needed to conduct business.
Private investors can be contacted to provide funds in exchange for a certain percentage of the business. The private investors are often ready to invest funds in strong and new businesses with the hope of generating more returns. Before seeking funds from a venture capitalist, the investors must have a solid business plan.
Different methods of financing in comparison with other methods AC 2.1
The business owners can take loans from Banks. To qualify for a loan the business owners ought to have a business plan as well as security. The interest on loans is always fixed. This can be different in the venture capitalist where the investors provide funds in exchange for a fraction of the company (Vaznyte, and Andries 133). The venture capitalist becomes owners of the company while the bank loans are merely creditors. In an event that the business is dissolved the banks will be paid first when compared to the venture capitalists.
Obtaining finances from the non-governmental institution is also different from the loans obtained from banks. Some of the NGO’s offer loans at a reduced interest rate when compared to what banks offer. In addition, the NGO will offer advice on the methods that can be used by investors to expand the business.
Analyze the methods of raising capital to the wider business world, especially interest rate, market and the state of the economy.
Banks loans is a common source of fund for most businesses all over the world. The interest on loans is always fixed. The bank's loans can either be unsecured or secured. The unsecured loans are either taken from the building societies or banks. The amount that is taken depends on the creditworthiness or credit rating of the business. The secured loans are taken after issuing a security. Depending on the security that is issued by the company they might be able to borrow more funds. The interest rate charged depend on the state of the economy and the government terms.
The share capital is another major source of finance for businesses. The business either resort to an initial business offer or right issue. The share prices are dictated by the general business performance and the amount of money they want to raise. The share capital can attract a large number of investors.
References
Ryu, Sunghan, and Keongtae Kim. "The Effect Of Crowdfunding Success On Subsequent Financing And Exit Outcomes Of Start-Ups". SSRN Electronic Journal, 2017. Elsevier BV, doi:10.2139/ssrn.2938285.
Vaznyte, Egle, and Petra Andries. "Entrepreneurial Orientation And Start-Ups’ External Financing". Academy Of Management Proceedings, vol 2018, no. 1, 2018, p. 13368. Academy Of Management, doi:10.5465/ambpp.2018.13368abstract.
