By Soumit Saha:
I want to open up a restaurant — Show me the Money! I want to launch my clothes line — Show me the Money! We want to invest in a business together — (you know) Show me the Money!
So where do you get the money to start off your business. Many young people today have the chutzpah, the passion to do something — to work on their ideas. A very new league of student entrepreneurs who start off early is slowly building and all of it has taken off from, none other than the story of Mark Zuckerberg (the Facebook guy). Such breed of fledgling businessmen and women are always in need of that initial monetary push, that support that could lift them to stable sustainable grounds. But where will this windfall money come from. Well to start off on our gyaan, this windfall money is calledÂ Seed Funding by the people in suits.
But the question remains, where do we get this from. The answer lies in two broad categories-Â Equity Funding and Debt Funding. And explaining these two in a manner we can all converse in is my motto behind this article. After all, we’ve always wondered “what if I were to start something of my own, who would Show me the Money!!”
Alright so you have the Business plan ready, have done your homework for a limited timeline in future, now its time to go looking for the Moolah.
Let me introduce you to my first friend,Â Equity Funding. We all know mum, dad, family and friends come to rescue when we need money. But whether they want to loan you the money in want of getting it it back or want to invest with you in your idea that they believe is worthwhile. Well the latter is equity funding and the former is debt funding. Let’s explore a little bit more.
You want to open a restaurant, your friends says he’ll invest around fifty percent of what you need in terms of the cost for land, furniture and other cost prices. Now this investment is equity based. Your friend owns half of your restaurant. Sure he’s a friend (a venture capitalist, an angel investor or may be just a friend indeed, no jargons for him now) but he has an equal say in your business matters as well as has a fifty percent stake to whatever profits you make. Now it seems like a shaky trade-off that you made doesn’t it. It’s to ponder over. Read on.
And what’sÂ Debt Funding? Now say you took all the money from the bank as a loan, obviously you’d have to pay interests and declare some personal assets in the case of you not being able to pay off the loan on time. But this comes with full independence on business decisions and full share of your profit, so if you break even, you’ll truly be your own boss with no one to report or share your progress with business wise.
After having presented to you both sides of the coin, what would you say is a better alternative? Clearly if you and I had the answer to that question, we’d not be in need to read this article as a starter. What’s the right alternative or a mix is all about taking risks and counting your cards on the table.