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When starting a business, you will undoubtedly need to inject funds into your idea to help get it off the ground. Whether the funds you require are small or large, there are various costs involved when launching your business. The money required to launch your business is referred to as startup capital. 

To help you better understand startup capital, this article will take you through what startup capital is and the different types of startup capital available. 

What Is Startup Capital?

Startup capital, also referred to as seed money or working capital, refers to the money required to start your business. You might require startup capital for a range of reasons. For example:

  • office space;
  • office equipment and supplies;
  • employees;
  • licences;
  • manufacturing costs; or
  • professional services fees.

Depending on the nature of your business, the costs of launching will vary. For example, a tech startup will likely require more capital than other business types due to the expenses associated with technology.

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Types of Startup Capital

There are a range of different ways you can fund your startup to get it off the ground, notably:

  • venture capital;
  • angel investors;
  • owner’s funds;
  • grants; 
  • accelerator funding; and
  • crowdfunding.

Below we explore each option and its pros and cons.

Venture Capital

Venture capital is one of the more popular ways to raise funds. It refers to when individuals with a high net worth or corporate groups invest in startups in exchange for equity in your business. Usually, this occurs in funding rounds. Venture capital funds are typically looking for business opportunities that will see high returns. This may impact if venture capital is right for your startup.

Pros

Cons

  • Venture capitalists monitor company progress
  • Mentorship opportunities
  • Loss of partial control
  • Venture capitalists typically seek to invest in companies with an established workforce

Angel Investors

Angel investors are high net worth individuals interested in specific industries. Likewise, they seek to invest funds and lend their specialist skills. Angel investors will wish to invest in return for a stake in your business. While angel investors are typically one investor, there are also angel groups who pool their money to invest collectively.

Pros

Cons

  • Mentorship opportunities
  • Investments are usually lower than venture capitalists

Owner’s Funds

Also referred to as bootstrapping, this method of raising capital refers to using your own funds to launch your startup. This may include your own savings or refinancing your home. As a startup owner, you will generally use your own funds in the very early stages of a startup to avoid diluting equity in the business.

Pros

Cons

  • Easy access to funds
  • Only a viable option for small-scale enterprises
  • High personal risk

Grants

There are a range of government grants available to fund startups. This includes upfront grants that are acquired through a rigorous application process, or more indirectly through tax incentives. State governments also offer grant opportunities, which are usually less competitive than federal grants

Pros

Cons

  • Access to without loss of control or equity
  • Highly competitive 

Accelerator Funding

Accelerator funding is another type of funding available. Accelerators are programs focusing on particular industries and provide mentoring services and access to industry contacts. Often, several startups will be provided with a coworkers space by accelerators so they can be surrounded by similar organisations.

Pros

Cons

  • Access to mentorship and other resources
  • Opportunity to connect with other startups
  • Short-term investment

Crowdfunding

Crowdfunding refers to the process of a large number of donors donating small amounts of funding. This gives you the chance to connect with investors outside of typical investment pools. Crowdfunding also allows you to connect with potential consumers early into your venture.

Pros

Cons

  • Generate public interest in your business
  • Removal of bureaucracy
  • Highly competitive 

Key Takeaways

No matter your business type, you will need money to help get a start. Whether you require a small or a large investment to kick start your business, you will need to source your cash flow from somewhere. There are a range of places you may obtain your startup capital, including:

  • venture capitalists;
  • angel investors; 
  • your own savings;
  • crowdfunding campaigns; or
  • government grants.

If you need assistance launching your startup or seeking startup capital, our experienced lawyers can help. You can contact LegalVision’s capital raising lawyers on 1300 544 755 or by filling out the form on this page.

Frequently Asked Questions

What is startup capital?

Startup capital refers to the money required to launch your business. You might use your startup capital for various reasons. For example, you will need funds to pay for your office space, manufacturing and supplies, employees and manufacturing costs.

What type of startup capital is available?

There are a range of different ways you can fund your startup to get it off the ground. This may include funding from professional investors such as venture capitalists or angel investors, using your own money, raising funds publicly through crowdfunding or obtaining government grants.

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