The startup business world is a tough go. Founders forgo the security and clear career path to make a go on their own, to start something new, to shake up an industry and to make a lasting impact. But these changes aren’t easy and require tremendous commitment from the owner of a Durham Region startup business. Funding will always be a problem for most startups. Consumer lenders want to make sure their principal is protected or that they can make inordinate interest off small sums. Enter the startup financing market.
Durham Region Startup Business Financing
The first thing to remember for a startup business is to not run out of money. Economies and marketplaces change – what’s true today is not necessarily true tomorrow so keep a cushion. Burning the boats behind you sounds exciting but normal founders don’t start with boats to burn. Google, Apple and innumerable others started out of garages. Funding comes in many forms but is usually described as:
Bootstrapping – The describe the process where entrepreneurs or founders use their own money, ingenuity and chutzpah to fund the startup business through imaginative means, new economical processes, making do/going without and sharing resources. Everyone should be so lucky to start at this level – the skills learned through necessity will serve you well if your business grows. You’ll know whether everyone needs an office with a door, needs new machines and tools or needs to fly first class.
Angel Investors – these may be your friends and family, they may be people you’ve worked for or with in the past. They may be early stage investors or other successful entrepreneurs. They provide seed money for you to bring your ideas to market and acquire your first customers. They’re called Angels because they lend based on your personal connection and experience not on hard financial ratios or sales. A lot of times they’re hiring the people behind your GTA startup business and not the products.
Venture Capitalists – the wise guys who want to see real sales, revenues and customers. These are the guys that invest for a living, that are prospecting for opportunities, making equity investments, possibly helping manage the startup business but definitely on your board and finally pushing for a few financial windfalls.
A Series – your first significant stock issue. Based on the Seed Money and Angel investment, your business is growing quickly and needs more capital to grow faster; this is where your first or A series securities might be issued. Usually issued as convertible preferred shares. Preferred shares usually have a set dividend schedule like debt and stand in front of common shareholders in the case of a liquidation. Convertible preferred are exchangeable for common shares under certain defined events or changes in share structure. Follow up series might include further stock issues before going public.
IPO or Initial Public Offering – time to ring the bell to open the stock exchange. When you’re ready to sell shares of your company to the general public, have your shares listed on a stock exchange and are big enough to deal with the scrutiny of being a public company.
Debt – From its simplest form in loans from friends, to credit cards, lines of credit and bank loans, bonds, debentures, secured notes. Debt is a valuable tool in growing your small business in Toronto while not diluting the owner’s equity.
Persistence is an Asset For Your Start Up Business
Remember your number one asset is persistence. Plan for your plans to fail and be constantly rewritten, your execution to take several tries and growth to be your toughest problem. If it was easy, everyone would do it.
If you have recently launched a startup business in Pickering or Durham Region, contact us to make the most of your new opportunity!
James Abbott is a CPA in Toronto with extensive knowledge about best Durham Region startup business practices. For more sound financial advice for small business in Ontario read our blog.
James Abbott, CPA and Associates