Capital \ Part 1

And our first post on the actual substance of business begins with exploring capital options.

While I am sure there is a myriad of strange financial instruments that seasoned entrepreneurs use, I'll cover the basics that I am currently considering. (Note: Not talking about incorporation just yet).

Bootstrapping: The good old fashioned do it yourself approach to fund raising. You earn income through a traditional (or untraditional) job and then throw it into your business.

Pros:

-You will not have to forfeit any ownership of the business. You do not have to persuade investors to throw their capital on the line. You are beholden to no-one but yourself at the onset. And all the profits are yours!

-No interest. You're doing this all out of pocket so you do not have interest expenses piling up on you.

Cons:

-And so are the failures. Most businesses do not succeed. Most business ideas have already been done or can be done better than whatever model you chose to adapt. The risk is yours and you do have everything to lose.

- No need to persuade others also means you will be lacking the input of many others and many others will not have a chance to rail and tear apart your business plan. Challenges to your business plan make it stronger and missing critique misses this notion.

-- To overcome that, go over your business plan with someone you can trust.

Debt Financing: Get a loan from the bank and pay it off.

Pros: Debt Financing can greatly extend your reach and your upfront capital.

Cons: Odds are if you are new to the game (which I am) you are not going to get an attractive deal from the banks in the midst of a credit crunch, and that you will be personally liable and credit limited in what exactly you can acquire from a bank. You will also have to go through mountains of paperwork and possibly persuade people to give you that loan. The bank can also take away your home. That is a big con.

Equity Financing (Venture Capital): This involves persuading others to give you funds/financing/etc based on giving them a share of ownership in the business.

Pros: Extends your reach and upfront capital. In addition it connects you with investors who have a good amount of experience with business, business plans, and management. They can advise you and guide you.

Cons: They can also sell you out and steal your idea and make the money themselves. They may be difficult to reach. The may not like your plan. They may tear apart a valid business plan and make you doubt yourself.

They can also make unreasonable demands, take the controlling interest, and turn your idea into theirs.

---

After assessing the above options I am currently leaning towards bootstrapping. I have $5,000 capital to work with right now and will continue to raise to 10k, which will cover over a year and a half of my expenses, which should be long enough to get a return or know when to quit and take away the lessons learned and get back on the horse after recouping.

The reason I am choosing this also involves my particular situation. I am a 22 year old male with a fairly steady job and very low overhead. If I do not bring home the bacon my non-existent children will not be tightening the belt. I do not yet have a trophy wife that demands a certain standard of living. I do not have nagging parents and relatives to discourage me. I also can afford the loss. If I lose ten thousand now, I will look back and say, Lesson Learned. Keep Working For The Man. I Love Big Brother.

Were I in a different situation, I would likely go for venture capital over debt financing and just suck it up.

Next Action:
Complete the Business Plan

I'll write about the steps in formulating my business plan over the next week.