Funding Your Start-up

Posted on December 11 2014 | Author: Kelly Laidlaw

Being your own boss and following your true passion are among the many factors that entice thousands of Canadians each year to start their own businesses. In fact, a study by the Wharton School of Business found that grads who started their own businesses reported the highest levels of career satisfaction, regardless of how much money they earned. However, no one said that starting a company would be easy. Entrepreneurs often report that the hardest part of starting a new business is raising the initial start-up money. Luckily there are several ways to do this.

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The Three Fs:
The first people that many entrepreneurs pitch to are the proverbial three Fs- friends, family and fools. This can be a fast way to get interest-free loans. However, mixing business with your personal life can get messy. To avoid ruining close relationships you may want to show them your business plan, let them know how much you’ve already invested into the business, and establish clear time lines as to when you’ll pay them back. If you find that your loved ones are weary of loaning money (perhaps they’re jaded from an annoying uncle’s get rich-quick-schemes) then take a look at the following options.

Personal Savings:
Many entrepreneurs start their businesses from their own savings. This is a good strategy since it allows you to maintain control over your company. It also shows investors and lenders that you have risked something of your own. This is a requirement to get many business loans. After all, if you aren’t willing to invest in your own company, how can you expect others to?

Bootstrapping:
Some businesses can be built up quickly enough to make a profit without getting investors involved. This can be done in some sectors such as the service industry, where there isn’t much initial capital needed for start-up expenses like employees or rent. Entrepreneurs can use their savings to get the business up and running, and then use the profits from each sale to continue to grow the company.

Debt Financing:
There are several types of debt financing, which are essentially loans that are paid back with interest. This is a good approach to getting funds relatively fast. Lenders want to make sure you have the following:

  • Personal collateral
  • A sound business plan
  • Realistic projected cash flow
  • A strong management team
  • Good credit rating
  • Commitment of your own money to the business

For more information on debt financing, click here.

Government Funding:
There are many options for government financing to either start or to expand your business. These include grants, contributions, loan guarantees and subsidies. The Canada Business Network site allows you to browse different government financing. The most desirable type of government funding is grants because they provide you with free money that you don’t need to pay back. It can take anywhere from 2 to 18 months to receive this funding. Understandably, you will need to be prepared to outline in great detail every aspect of your business and what the grant money will go toward.

Private Investors:
Angel investors are wealthy individuals who invest their own money in the hopes of getting a return from a business opportunity. Their investments usually range from $25,000 to $100,000.  Some angel investors act very quickly, while others take their time before investing. If you are comfortable giving up equity for financing, this can be a smart solution to raise capital. Though angel investors’ involvement levels vary, they can serve as a valuable mentor since many are entrepreneurs themselves who have successfully built and sold companies. Since they are risking their own money, it is in the angel investor’s best interest to coach you and to help your company thrive. 

Venture capital is money provided to start-ups from a fund, which is a pool of money that was raised through individuals or companies who have money to invest.  Venture capitalists usually invest larger amounts of capital than angel investors, and typically invest after the first round of seed funding.  They are looking to invest in innovative technologies with high-growth potential. Venture capital can be an excellent option for companies who are too small to ether raise money in the public markets or to complete a debt offering.

Harnessing the Crowd:
Crowdfunding is a valuable tool for entrepreneurs and businesses looking to bypass traditional sources of funding. Crowdfunding usually raises money through collecting funds from a large amount of people, or the ‘crowd’.  This is done via the Internet on sites such as Indiegogo and Kickstarter.  Project creators document their ideas on the website in hopes of getting donations and pre-selling their products. Crowdfunding can be a fast way to raise money, but even if your venture doesn’t get funded, at least you’ll get to test your business idea and get exposure. Keep in mind that you will need to carefully consider your company structure to ensure that you can maintain control of your business, since the number of shareholders could dramatically increase after crowdfunding. Recently, some provinces have been considering crowdfunding. In December 2013 Saskatchewan became the only Canadian province to have a crowdfunding specific prospectus exemption. Currently, there are no websites offering equity crowdfunding in Saskatchewan. Once equity crowdfunding websites are launched, the Government of Saskachewan’s Financial and Consumer and Affairs website will post them here, so stay tuned!

Kelly Laidlaw
Project Coordinator






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