Funding types for startups

Funding types for startups

Equity financing

is the method of raising capital by selling company stock to investors. In return for the investment, the shareholders receive ownership interests in the company.

Mezzanine financing

is a hybrid of debt and equity financing that gives the lender the right to convert to an equity interest in the company in case of default, generally, after venture capital companies and other senior lenders are paid. Are often Convertibles, Options, or redeemables.

Credit Financing

(borrowing, lending, loan, money lending)

Transaction between two parties in which one (the creditor or lender) supplies money, goods, services, or securities in return for a promised future payment by the other (the debtor or borrower).

Funding Sources

In each of the stages various sources of funding are at the disposal of founders (each with their own pros and cons ), the most common one as follows:

1. Personal Savings

This is the most appealing source of financing, because you use your own money to jumpstart your business and don’t owe anyone else in the process.

2. Family and Friends

You can request your friends, family or close associates to help fund your business. This type of funding has more to do with the relationship itself, rather than the assessment of a feasible business plan. The aim of this type of funding is to help kick off a business to a point where it can seek and get other types of funding.

3. Crowdfunding

This involves funding a business by taking small amounts of capital from a large number of people, usually via the internet. This type of funding makes use of the vast networks you’ve of your friends, family and colleagues via different social platforms to get the word out about the business, with the goal of attracting new investors. This is normally done via participating subordinated loans. 

4.  Crowdinvesting 

This involves funding a business by taking small amounts of capital from a large number of people, usually via the internet. primeCROWD offers institutionalized equity investments and also makes them available to smaller angels and first-time investors. 

5. Angel Investors

Angel investors are wealthy individuals who will provide funding in exchange for a share of equity in the business. Some investors work in groups and screen deals together before providing funds, while most work on their own.

6. Venture Capital

Venture capital funds are investors who put in a considerable amount of money in exchange for equity in the business, and get returns when the business goes public or is acquired by another company. Venture capitalists are all about the money, and only invest in businesses that have the potential of providing good returns on their investment

7. Bank Loans

Bank loans are a popular source of funding for many startups. Before applying for a bank loan, it’s important to ensure that you are well educated about the various options available, and the interest rates that come with each option.

8. Grants and subsidies

Particularly in the DACH regions, a crucial source of funding for early stage startups. Can be grants (which don’t need to be paid back) or state-secured loans (payback only if enough liquidity)