Infrastructure Finance The Business Of Infrastructure For A Sustainable Future Startups Must Choose Financing Models Wisely: Bootstrapping versus Angels versus VCs

You are searching about Infrastructure Finance The Business Of Infrastructure For A Sustainable Future, today we will share with you article about Infrastructure Finance The Business Of Infrastructure For A Sustainable Future was compiled and edited by our team from many sources on the internet. Hope this article on the topic Infrastructure Finance The Business Of Infrastructure For A Sustainable Future is useful to you.

Startups Must Choose Financing Models Wisely: Bootstrapping versus Angels versus VCs

When a Startup decides to expand using Bootstrapping, Angels, or VC, it is wrong to think that this choice is only about money. Many advise founders to take the best deal and complete the process as quickly as possible.

However, it should be noted that the type of financing a startup receives determines the strategic direction of the company and the likelihood of success.

The Financial Model has many real strategic implications. When early-stage startups choose a financial model, they limit themselves to limited strategic choices. When choosing a Financial Model, I think it’s best to forget money for a moment and focus on strategy.

To make the best decisions regarding your financing and de facto strategic direction, startups need to put themselves in the best light from day one.

Every startup should end a series of successful prototyping with an analysis of the low-cost, high-impact business model, revenue model, pricing model, and sales strategy that fits their solution. [problem-solving product or service] and its Users.

The next step for startups is assessing the cost of implementing and executing a particular business model. Startups can choose to self-finance these costs, receive funding from Angels, or use a pay-as-you-go strategy where you use a small sales base to generate free cash flow which in turn funds additional sales efforts.

Finally, when moving into Alpha and Beta testing, it is important to simultaneously test a well-thought-out business model, revenue model, pricing model, and sales strategy alongside your solution. If you decide to go after market share, forgo the business model, and temporarily give up your product, then it’s still a good idea to allow Users to purchase upgrades, subscriptions, or add-ons. Otherwise, you may never know how many Users are committed or passive.

The Bootstrap Financial Model calls for a laser focus on product development, cost control, sales, and profits. Bootstrap is similar to the smart design concept. You’re building a company from the ground up and are willing to let naturalistic growth cycles occur. You are interested in keeping your company flexible, ready to change direction according to market demands. You are opportunistic. Bootstrapping has lower initial risk, but higher long-term risk as you may lose significant market share while other companies go big. Bootstrappers run the risk of being relegated to a sub par market position even though you may have the coolest solutions, the coolest brands, and a cult-like User base.

The Angel Financial Model requires smooth investor relations, high User growth rates, and a strategic direction that leads to a high probability of a merger or acquisition. Angel financing is similar to the theory of evolution. The Angel Fund acts as a boosting agent to propel Startups on an evolutionary cycle towards a possible Series A round or additional capital injection by Angel.

Despite opinions to the contrary, angel investors are not charities, arsenals of free money, or blind speculators panning for gold in quicksand. Angels need to make successful investments to maintain their investment activity. Angel financing has medium to short term and medium to long term risks.

The biggest dilemma in a Startup/Angel relationship is the misunderstanding of roles and responsibilities. Angel is fundamentally invested in the initial stage conceptual presentation of the solution. Angels should avoid getting involved in day-to-day management. Their only concern should be finalizing a workable solution [problem-solving product or service] ready to develop from prototype to Alpha test/Beta test. With Angels, the clock keeps ticking slow, but it keeps ticking. There are expectations of several rounds of financing and mergers or acquisitions in 3-5 years. Angels usually expect to get a return on investment post-dilution of at least 200%.

The VC Finance model can be simplified and is best understood as a troika consisting of Early Stage VC Funding, Early Stage VC Funding and Late Stage VC Funding. Seed Stage VCs invest after evaluating early prototypes or hearing of a really hot pitch. Early Stage VCs invest with the sole aim of maximizing the value and market position of a Startup in anticipation of future financing rounds. Late Stage VCs invest in Startups seeking additional funding while preparing for an eventual IPO or M&A. At each stage of a startup’s evolution, VCs invest with the expectation of exponential growth and a successful M&A or IPO will support the risk involved.

The VC Financing Model forces startups to grow at an accelerating pace. Such growth carries considerable risks and requires the development of an expensive labor, advertising and technology infrastructure. In the short term, the risks involve technology and labor. Startups must scale quickly to ensure quality user interaction, while setting up their websites and customer service systems to handle the exponential increase in Users. Startups also have to deal with a potential shortage of highly skilled programmers and project managers. Market-based long-term risk. While managing such a fast pace of expansion, Startups must stay grounded in the market and respond proactively to the changing tastes and needs of their Users.

Under this scenario, focus is placed on expanding market share and brand identity. Usually, VCs expect a minimum net return on investment of 600%-1000%. VC funded startups are always expected to be market leaders. VC-funded software companies surviving multiple financing rounds and heading for an M&A or IPO can easily spend $50,000,000 or more over a two-year period.

It is important to note that while there are countless examples of surviving and thriving companies financed by Bootstrap and Angel, successful Large-Scale VC investments were few in the Web 2.0 Age. Startups don’t need a lot of money to fund operations. And there’s a more patient attitude from startup founders who seem committed to running their company for a long time before seeking VC funding.

Many Startups will become sustainable using all three Funding Models in the near future. Some Startup Founders will decide early on to rely exclusively on one Funding Model during their company’s embryonic period. For example, there is a possibility that a Startup can achieve a successful M&A or IPO by just Bootstrapping. In contrast, many Startups will only use a few Angel investments or a few rounds of VC funding to achieve success.

Plus, others are sure to find success with a mix and match of Financing Models. For example, a Startup might initially secure an Angel investment then opt to Bootstrap or receive VC funding to facilitate further expansion and progress towards exit.

It is best to remain free of preconceived notions or prejudices. When the time comes to make a Financing Model decision, remember that you are making a mandatory strategic decision. Just make the best decision possible relative to the market conditions and fiscal circumstances your company is facing at the time.

MORE essays AVAILABLE AT: http://www.geraldjoseph.typepad.com

Video about Infrastructure Finance The Business Of Infrastructure For A Sustainable Future

You can see more content about Infrastructure Finance The Business Of Infrastructure For A Sustainable Future on our youtube channel: Click Here

Question about Infrastructure Finance The Business Of Infrastructure For A Sustainable Future

If you have any questions about Infrastructure Finance The Business Of Infrastructure For A Sustainable Future, please let us know, all your questions or suggestions will help us improve in the following articles!

The article Infrastructure Finance The Business Of Infrastructure For A Sustainable Future was compiled by me and my team from many sources. If you find the article Infrastructure Finance The Business Of Infrastructure For A Sustainable Future helpful to you, please support the team Like or Share!

Rate Articles Infrastructure Finance The Business Of Infrastructure For A Sustainable Future

Rate: 4-5 stars
Ratings: 5625
Views: 41075815

Search keywords Infrastructure Finance The Business Of Infrastructure For A Sustainable Future

Infrastructure Finance The Business Of Infrastructure For A Sustainable Future
way Infrastructure Finance The Business Of Infrastructure For A Sustainable Future
tutorial Infrastructure Finance The Business Of Infrastructure For A Sustainable Future
Infrastructure Finance The Business Of Infrastructure For A Sustainable Future free
#Startups #Choose #Financing #Models #Wisely #Bootstrapping #Angels #VCs

Source: https://ezinearticles.com/?Startups-Must-Choose-Financing-Models-Wisely:-Bootstrapping-versus-Angels-versus-VCs&id=360754

Related Posts

default-image-feature

Center For Governmental Studies Public Financing Laws In Local Jurisdictions Foreign Companies – Procedures for Opening Branches in India Under Companies Act and FEMA

You are searching about Center For Governmental Studies Public Financing Laws In Local Jurisdictions, today we will share with you article about Center For Governmental Studies Public…

default-image-feature

Information On Finance Of Non Profit Disabled Training Programs California Estate Planning Elder Law Guide

You are searching about Information On Finance Of Non Profit Disabled Training Programs California, today we will share with you article about Information On Finance Of Non…

default-image-feature

Center For Commercial Real Estate Economics Finance Urban Land Institute Corporate Social Responsibility of Private Companies in Natural Disasters

You are searching about Center For Commercial Real Estate Economics Finance Urban Land Institute, today we will share with you article about Center For Commercial Real Estate…

default-image-feature

Capital Small Finance Bank Career Capital Small Finance Bank Career High Pay Still Found in Finance

You are searching about Capital Small Finance Bank Career Capital Small Finance Bank Career, today we will share with you article about Capital Small Finance Bank Career…

default-image-feature

Capital One Credit Cards Auto Finance Loans And Savings Accounts 7 Steps to Retirement Planning to a Safe and Secure Future

You are searching about Capital One Credit Cards Auto Finance Loans And Savings Accounts, today we will share with you article about Capital One Credit Cards Auto…

default-image-feature

Capital Means The Money Businesses Use To Finance Their Operations Asset Financing: Leasing Over Loans

You are searching about Capital Means The Money Businesses Use To Finance Their Operations, today we will share with you article about Capital Means The Money Businesses…