Imagine you own an established startup with growing profits. You are looking for funding to greatly expand company operations. What method of financing would be best for you?

Question

Business

Ryan Case

26 July, 08:16

Imagine you own an established startup with growing profits. You are looking for funding to greatly expand company operations. What method of financing would be best for you?

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Answers (2)

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Nathaniel Sellers · Answer 1

For the early stage: Sales series of shares A and B

For the growth stage: capital mezzanine, hybrid financing.

Explanation:

Early stage

Once the product or service and some customers have been validated, the founders of the company try in this third stage to scale the business model, open new offices, expand the workforce and make a place in the market. These operations are usually led by venture capital funds, but other actors also participate in them, such as crowdfunding capital platforms such as The Crowd Angel.

Growth stage

Capital mezzanine, a hybrid financing instrument rare among new businesses that finds a halfway between debt and capital. All these operations correspond to a kind of bridge towards stages prior to an exit. Financing operations at these stages are usually led by private equity companies or investment banks with a powerful economic muscle and second by large venture capital funds.

Fabian Oconnor · Answer 2

Bootstrap Financing.

Bootstrapping is basically a situation where an entrepreneur starts a company with little capital, relying on money other than external investments or loan. An individual is said to be bootstrapping when he ventures to establish and build a company from scratch with personal finances or the operating revenues of the new company.

This method is said to be preferable because it gives the entrepreneur room to grow, without having to worry about paying a debt, and also it eliminates the interest rates that comes with bank loans.

One of the advantages of bootstrap financing is that the business will grow healthy because less money has been borrowed, and therefore, no money or interest rates needs to be relinquished.

Another option to consider is Trade Credit. This is a situation whereby the supplier gives you the option of credit facility, this could be in the form of an extended date for payment of goods. This gives the entrepreneur time to make profits before paying the supplier.