Simply put, start-up capital is the money that is required to start up a new business. Start-up capital can be raised in a number of ways, from using your own money to invest in your business venture, to borrowing money from a bank, or using third party investment to help you get your business running. Sometimes start-up capital is also referred to as ‘seed capital’.
For those entrepreneurs who are looking to get their business started by attracting investors it is important to have a clear understanding as to how much money you require to launch your business and you should also know exactly how you are going to spend that investment. As investors will want a clear picture of how you are going to spend their money, it is important to spend a lot of time ensuring that the planning stage is done proficiently. By presenting a clear business plan you are much more likely to attract the start-up money you require. Remember, outside investors will not want to invest in a new business no matter how promising it sounds if the new business owner doesn’t have a firm and clear grasp of the financials.
One of the mistakes that new entrepreneurs make is not asking for enough start-up capital in the first place. It may seem like a good idea to come up with a conservative investment amount initially, however this could be false economy if you run out of money too quickly. In many cases if a business runs out of money before it sees success investors are reluctant to throw more money into a business venture just to keep it afloat. Therefore there is a danger that your business could go under in such circumstances so you should ensure when you are planning your new business venture that you pencil in enough investment budget to see you through to the stage when your business becomes profitable.
Another tip is to try to minimise the number of outside investors that are investing in your business. Whilst it may seem easier to get more investors on board each investing smaller amounts, each investor will still want to see a good return on their investment no matter how much they invest, and you will have to keep the investors updated regularly with how the business is going. Managing these investor relationships can take up a lot of time, time which would be better spent running your business, therefore by minimising the number of outside investors providing you with start-up capital, the more time you will have to run your business and therefore the better chance of success.