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Grow Your Business Without Drowning in Debt

Grow Your Business Without Drowning in Debt | Entrepreneurs | Scoop.it
What should a startup sacrifice to get the funding to fuel its growth?

 

The startup dream goes something like this: A couple of entrepreneurs with a great idea hole up in a basement and hatch software and social networks that bloom into billion-dollar businesses.

The reality is much more complicated. Businesses don’t bloom into billion-dollar companies without a significant amount of capital. And raising money comes with a thorny question for startups: What might the venture have to sacrifice to obtain the funding to fuel growth?

Giving up equity too early in the life cycle of a company can be extremely expensive. But starving a company of funding out of a fear of giving away too much ownership can hamstring its potential.

Here are three things to understand before raising capital to fund business growth:

1. Equity is expensive.

If you have an early-stage startup with a promising future, giving over equity might end up being the most expensive way to raise capital.

While a venture capitalist or an angel investor might think that a 50 percent stake in your company is a fair exchange for an infusion of funding, you need to look beyond the current state of your business (a couple of coders working at a few computers). Calculate what this means if your company turns into the next Facebook, Salesforce or Instagram.

Instead of trading equity, consider using convertible debt, which delays a valuation of a company until the first institutional investor buys into the firm. At that point, the company will be more mature, which can lead to a more equitable valuation of the startup for founders.

Convertible debt can work well for both investors and entrepreneurs. For investors, it cuts the risk associated with a pure equity stake while maintaining the upside of an equity position. For entrepreneurs, it delays the valuation until the company has matured to a level that makes the assessment more than a guessing game.

2. Self-funding can limit growth.

Bootstrapping a company to its full potential is a lofty goal, but it's almost always unattainable. Businesses simply need capital to fund their growth. And most savvy business owners realize that without outside capital, they will never grow their company to its true potential.

If you're considering self-financing a company, think about the downsides before committing to this approach: Will it impede growth, restrict your market share or lead to a cash crunch?

Self-financed companies can find themselves in an unenviable position possible, running out of cash and desperate for financing. This can lead to a complete loss of leverage at the negotiating table with banks, venture capitalists or private equity groups.

“Entrepreneurs should always have a trusted advisor or CFO who can see ahead and make decisions proactively rather than reactively,” Dusty Wunderlich, CEO of my client Bristlecone Holdings, tells me.

“When entrepreneurs lose cash flow, they give up leverage and negotiating power and risk losing too much ownership in a desperate attempt to raise funding,” says Wunderlich, who is also a partner at private-equity group DCA Capital Partners.

3. The burn rate matters.

A burn rate -- the rate at which a company spends its startup capital -- can vary wildly. Software companies can get off the ground and grow with a slim budget, but manufacturing companies and hardware makers consume enormous amounts of capital.

Bootstrapping a software startup is possible. But a manufacturing company will require significant financing or investor capital from the start.

Every business has different funding needs. But certain warning signs signal that a company is overleveraging or taking on too much debt.

“If you are taking on debt for operating expenses, you are probably not that healthy,” Wunderlich says. “Debt for assets, infrastructure or acquisitions is a more appropriate use of debt or leverage.”

 

 

 

 

 

Get your Free Business Plan Template here: http://bit.ly/1aKy7km

 

 

 




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Marc Kneepkens's curator insight, December 5, 2014 8:07 AM

Don't drown in debt, important, don't grab (easy) funding, think about it thoroughly, get good advice.

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Techstars Toronto announces managing director, ability to grant Startup Visas

Techstars Toronto announces managing director, ability to grant Startup Visas | Entrepreneurs | Scoop.it
Techstars has named Sunil Sharma as the managing director of Techstars Toronto, and announced the ability to issue Startup Visas.
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Startup Fundraising: The Pitch Deck and Financial Modeling - Techstars

Startup Fundraising: The Pitch Deck and Financial Modeling - Techstars | Entrepreneurs | Scoop.it

As you prepare for your fundraising effort, you need to get the basic tools of the trade completed before you start the process. In part one of this post, we covered traction and the executive summary. In this post, we will dive into pitch decks that will raise capital and financial models. The goal is … Read more: click image or title.

 

FREE Business Plan Template here: http://bit.l/1aKy7km

Growthink teaches how to FUND, build, grow, and sell a great business: http://bit.ly/2hn5ROb


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Marc Kneepkens's curator insight, July 26, 2017 9:03 PM

The second part of this article by Techstarts on #Fundraising

 

Marc Kneepkens's curator insight, July 29, 2017 9:39 PM

The second part of this article by Techstarts on #Fundraising

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Startup Fundraising: The Pitch Deck and Financial Modeling - Techstars

Startup Fundraising: The Pitch Deck and Financial Modeling - Techstars | Entrepreneurs | Scoop.it
As you prepare for your fundraising effort, you need to get the basic tools of the trade completed before you start the process. In part one of this post, we covered traction and the executive summary. In this post, we will dive into pitch decks that will raise capital and financial models. The goal is …
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Got Gray Hair? Don't Despair - This Non-millennial Entrepreneur Rejected VC And Won

Got Gray Hair? Don't Despair - This Non-millennial Entrepreneur Rejected VC And Won | Entrepreneurs | Scoop.it
Two middle-age entrepreneurs bootstrap their software startup to success without venture capital
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How This Successful Teenage Entrepreneur Learned The Art Of Tenacity

How This Successful Teenage Entrepreneur Learned The Art Of Tenacity | Entrepreneurs | Scoop.it
Persistence and tenacity are just as crucial to startup success as drive and passion for young entrepreneurs.
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Seven Lessons Every Startup Founder Can Learn From On Their Journey To Success

Seven Lessons Every Startup Founder Can Learn From On Their Journey To Success | Entrepreneurs | Scoop.it
Think about how you would feel if the next unicorn company turns out to be exactly the idea you had while you were too afraid to take any risks.
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PM Justin Trudeau says STEM ability, education will help Canada succeed during OneEleven launch

PM Justin Trudeau says STEM ability, education will help Canada succeed during OneEleven launch | Entrepreneurs | Scoop.it
OneEleven celebrated the launch of its new 250,000 square foot space, and PM Justin Trudeau stopped by the scaleup-focused innovation hub for a town hall with
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From Startup to Scaleup - Sam Altman and Reid Hoffman at The Scaleup Offsite

From Startup to Scaleup - Sam Altman and Reid Hoffman at The Scaleup Offsite | Entrepreneurs | Scoop.it
Sam Altman sits down with Reid Hoffman to talk about the key changes founders should think about as they transition from a startup to a scaleup.

This conversation took place at The Scaleup Offsite, a private CEO gathering hosted by Y Combinator Continuity and Greylock Partners in April 2017.
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Marc Kneepkens's curator insight, June 9, 2017 1:01 PM

Very interesting talk by Reid Hoffman and Sam Altman.

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Dog Apps Startup GoPetie Is Tinder For Pets | PYMNTS.com

Dog Apps Startup GoPetie Is Tinder For Pets | PYMNTS.com | Entrepreneurs | Scoop.it
GoPetie’s Founder and CEO Diego R. Alves has a new take on how to make pet ownership less of a chore and has built the app to do it.
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9 Key Milestones from Seed to Series A – Point Nine Land – Medium

9 Key Milestones from Seed to Series A – Point Nine Land – Medium | Entrepreneurs | Scoop.it

I was this week at Numa Berlin. I gave a second talk after the one I gave at HEC Seed Summit some weeks ago. Whilst the first talk was focused on best practices for SaaS entrepreneurs 


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Dutch group to clean Great Pacific Garbage Patch within the next year

Dutch group to clean Great Pacific Garbage Patch within the next year | Entrepreneurs | Scoop.it
A Dutch foundation aiming to rid the world's oceans of plastic waste says it will start cleaning up the huge area of floating junk known as the Great Pacific Garbage Patch within the next 12 months.
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12 Personality Traits Entrepreneurs Should Possess, and Improve on, to Succeed in the Startup World

12 Personality Traits Entrepreneurs Should Possess, and Improve on, to Succeed in the Startup World | Entrepreneurs | Scoop.it
Personality traits are the key to success in the startup world. How can you cultivate it? Here are the tips from young entrepreneurs.
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How to pitch to VCs and angel investors as a tech startup. 11 tips from founders

How to pitch to VCs and angel investors as a tech startup. 11 tips from founders | Entrepreneurs | Scoop.it

Learn how to make even the best investors interested in your business. Emerline interviewed 4 different startup owners and asked to share their secrets!

"Pitching to investors is just like dating but you only get access to their LinkedIn profile whereas they get to see you naked and your bank balance. All the mind games still apply. You need to play hard to get to make yourself more desirable and you can't seem desperate. You will meet lots of people and it is easy to get distracted with investment offers that aren't right but you have to stay strong and wait for 'the one'."

Elyse Daniels, CEO of ExodusWear Read more: click image or title.

 

FREE Business Plan Template here: http://bit.l/1aKy7km

Growthink teaches how to FUND, build, grow, and sell a great business: http://bit.ly/2hn5ROb

“Hey Dave!
I bought one of your business planning templates and have been receiving your emails and videos for a few months now…
I just wanted to say thanks for cranking out such amazing work!
You're doing an incredible job, and I know entrepreneurs everywhere are benefiting from it!
Please, keep it up!
Wishing you all the best!”
Colin Pape
President
ShopCity.com, Inc


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Marc Kneepkens's curator insight, May 15, 2017 9:34 AM

#Pitching #investors is a learning experience. This article illustrators how several #startup #founders went about it. Great stories and good advice.

 

FREE Business Plan Template here: http://bit.l/1aKy7km

Marc Kneepkens's curator insight, May 15, 2017 10:28 AM

#Pitching #investors is a learning experience. This article illustrators how several #startup #founders went about it. Great stories and good advice.

 

FREE Business Plan Template here: http://bit.l/1aKy7km

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How to Select Right Co-Founder for your Startup

How to Select Right Co-Founder for your Startup | Entrepreneurs | Scoop.it
How to Select Right Co-Founder for your Startup - Get a right co- founder for your startup and Don’t give up.
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Startup Fundraising: The Executive Summary

Startup Fundraising: The Executive Summary | Entrepreneurs | Scoop.it

As you prepare for your startup fundraising effort, you need to master the Executive Summary, Presentation and Financial Model before you can present.

The Executive Summary, Presentation and Financial Model are your marketing collateral to sell your product. You’ll build a funnel of prospects, requiring both research and introductions.

The goal is to create competitive term sheets, from multiple investors, for your growth capital. Read more: click image or title.

 

FREE Business Plan Template here: http://bit.l/1aKy7km

Growthink teaches how to FUND, build, grow, and sell a great business: http://bit.ly/2hn5ROb


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Marc Kneepkens's curator insight, July 26, 2017 7:49 AM

Some basics you need to have before #raising any kind of #funding.

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5 Startup Dilemmas To Overcome By First-Time Entrepreneurs

5 Startup Dilemmas To Overcome By First-Time Entrepreneurs | Entrepreneurs | Scoop.it
It’s a given, 9 out of  10 startups are doomed to fail. Despite this incredibly high failure rate, the startup industry is still flourishing. According
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42 Pricing Tricks Based on Psychology & Neuroscience

42 Pricing Tricks Based on Psychology & Neuroscience | Entrepreneurs | Scoop.it
Welcome to a huge resource on pricing. You'll learn 42 psychological tricks to make your price more effective - without actually lowering it.

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How Partnering With Mommy Bloggers Helped This Startup Make a Big Splash

How Partnering With Mommy Bloggers Helped This Startup Make a Big Splash | Entrepreneurs | Scoop.it
Leura Fine sat down with Entrepreneur Network partner Jen Hacker at the Project Entrepreneur Summit to talk about building her brand.
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How This Startup Is Disrupting Preschool And Turning Teachers Into Entrepreneurs

How This Startup Is Disrupting Preschool And Turning Teachers Into Entrepreneurs | Entrepreneurs | Scoop.it
Wonderschool is leading a new movement in early childhood education. They recently announced a $2 million seed round of financing. The company provides parents with access to high-quality child care, and helps turn teachers into entrepreneurs. They plan to expand in over 15 new cities in 2018.
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Here’s what the top accelerators in North America are funding

Here’s what the top accelerators in North America are funding | Entrepreneurs | Scoop.it

The top startup accelerators have a history of seeing the future in ideas that sounded silly at the time. After all, who would have foreseen billion-dollar businesses based on renting your air mattress to strangers, or shopping for their groceries?

So when prestigious accelerators invest around common themes, it’s worth taking note of what’s resonating. Read more: click image or title.

 

FREE Business Plan Template here: http://bit.l/1aKy7km

Growthink teaches how to FUND, build, grow, and sell a great business: http://bit.ly/2hn5ROb


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Marc Kneepkens's curator insight, June 12, 2017 8:35 AM

It's important to keep tabs with trends in #startup funding. 

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This 31-Year-Old Is Worth $3B For Bringing Drug Marketing Into Your Doctor's Office

This 31-Year-Old Is Worth $3B For Bringing Drug Marketing Into Your Doctor's Office | Entrepreneurs | Scoop.it
Founder Rishi Shah quietly built a $3.6 B fortune by bringing tablets full of health content - and drug marketing - into doctor's offices across the U.S.
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Three girls invent a straw that detects date rape drugs in drinks

Three girls invent a straw that detects date rape drugs in drinks | Entrepreneurs | Scoop.it
Three Miami, Florida students - Susana Cappello, Carolina Baigorri and Victoria Roca - have invented a straw that turns blue when it detects two common date rape drugs in a drink.
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10 Intellectual Property Strategies for Technology Startups | AllBusiness.com

10 Intellectual Property Strategies for Technology Startups | AllBusiness.com | Entrepreneurs | Scoop.it
Intellectual property (IP) issues often are among the most important considerations that a technology startup will encounter. We present 10 important steps all tech startups should take.
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How To Start Building Your Startup's Brand On Social Media - Hypepotamus

How To Start Building Your Startup's Brand On Social Media - Hypepotamus | Entrepreneurs | Scoop.it
Social media is a perfect avenue to start building your startup brand's reputation. Here are some top strategies from Hype's social media expert.
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When was the Last Time you Talked to Your Customers? - MindTheProduct

When was the Last Time you Talked to Your Customers? - MindTheProduct | Entrepreneurs | Scoop.it
  I love asking people this question. It is quite a shocker that most people can’t really answer it. Everyone talks and writes about the importance of customer development, but companies still don’t spend enough time really talking to their customers. It’s a bit like data: you won’t find a single founder who doesn’t say: …
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