The great thing about America is the notion of the “American Dream.” In this dream, someone can rise in income through starting a business and give their offspring more than what they started off with. Often in this scenario, a person often starts out with little. Lots of immigrants start businesses with this notion in mind. Entrepreneurs often start out with talent and passion but not money. So the dilemma faced is how entrepreneurs can navigate all of the different funding options for their venture. Between debt financing; equity financing and the categories that fall under this umbrella; crowdfunding through online platforms, entrepreneurs face an upfront critical decision. Before making this decision, entrepreneurs should take into account their own personal needs in their venture whether it be wealth or control.
Noam Wasserman explains it well in his instant entrepreneurial classic, The Founder’s Dilemma. An entrepreneur needs to assess their motivations. Are they more interested in guiding their venture, or are they more interested in profiting from it. Of course, entrepreneurs are inclined to say they are motivated by both. However, it all depends on whether an entrepreneur is interested in being their own “king” or getting rich. Recognizing motivations is necessary to strategically negotiate deals down the road and prevent a business from having a Game of Thrones. Thus, following their motivations, entrepreneurs should seek funding routes that mitigate future problems for both them personally and their business. Personal problems can include a broken family, being unhappy with the direction of the company, shorting oneself, financial gain. Business problems would include toxic ownership disputes and impending failure of the business. This is a more important criterium than doing what is easiest or cost effective.
- Friends, Family, Fools
- Debt Financing
- Equity Financing
Each of these options will receive their own post to explain in greater detail the pros and cons of each alternative funding method.
Entrepreneurs should pray diligently about these funding options. It would be unwise to undertake a lot of debt, or accept people’s money if God is not leading you in this direction.