1. What sources of funding are available to entrepreneurs at the early stage of the company?

The following eight sources are available, and mostly suited for entrepreneurs, who want to secure an early stage funding:

1. Self-Funding: The majority of new business are usually started with funds that come from personal savings or various forms of personal equity of the founder(s).

2. Moonlighting and Consulting: It might be a wise idea not to quit your full-time job. You could work part-time and still be engaged to your venture idea. You could also offer freelance consulting jobs to other startups or companies. Maybe you have expertise other companies could benefit from.

3. Bootstrapping: It is often applied in small business, and is a form of self-funding. It allows to analyze the operation process to save and improve efficiencies that will help and allow the entrepreneur to learn more about the company.

4. Family and Friends/Angels: An entrepreneur usually sees friends and family as a great source to go to when asking for funding. To guard themselves as well as their friends/family, the entrepreneur should treat them as he/she would if they were a “real” investor. It’s important to document any loans that come from friends or family. Angels often represent the best method to pursue when friends/family is not a viable option. Angels are high-net-worth individuals who have some funds they are willing to risk in startup companies.

4. Micro-Equity, Micro-Loans: Usually the entrepreneur receives a small amount of money to get by for a few months, and in return gives up a few percent of the company – usually 4%.

6. Personally Secured Bank Loans: The primary advantage of debt financing is that the entrepreneur does not have to give up any part of ownership to receive the funds.

7. Factoring and Supplier Financing: If you are unable or unwilling to provide personal or asset-backed guarantees but you have purchase orders from reputable customers, it may be possible to use these orders to secure funding from so-called factors.

8. Government Programs: The Small Business Administration agency, a government program, works with intermediaries, banks, and other lending institutions to provide loans and venture capital financing to small businesses unable to secure financing though normal lending channels.

2. What are “virtual” companies? What tools help them function? Why are they of interest to an entrepreneur?

A virtual company is a company that has no office, very few employees loaded with associated costs and benefits, no communication costs, low legal costs etc. A virtual company will use other services to get through the work day, for example, conference calls are held via Skype, BaseCamp for project team and document management, ADP for payroll and tax management, and Salesforce.com for sales tracking etc. The move to so-called cloud computing provides start-ups with access to highly sophisticated management tools on a free or a low pay-as-you-go basis. Virtual companies move quickly, change direction without disruption, and use the best resources without taking on long-term liabilities.

3. Describe the seven techniques for bootstrapping that you could use if you started a company.

1. Cooperative Purchases: There are often ways to work with other small companies to create a buyers’ club.

2. Access to Expensive Equipment: Schools sometimes have programs to help small business and allow accessing their equipment.

3. Outsourcing: To save money, it could be ideal to outsource activities such as bookkeeping, payroll services, and tax return services.

4. Credit Cards: The entrepreneur may contact major credit card companies to compare prices and options to see what company can offer the best deal.
5. Bartering for Goods and Services: You may have skills you can trade for skills you don’t have.

6. Renting or Leasing Equipment: Especially expensive equipment you only need in the start-up phase is best rented or leased.
7. Used Equipment: It is often possible to find inexpensive used equipment that with a little work will fill short-term needs.

4. Why is bootstrapping important for (a) closely held companies and (b) early-stage, high-growth companies seeking equity investors?

1. Bootstrapping is one of the few forms that give up no ownership.
2. Bootstrapping shows potential investors that you have “sweat equity” in the business and wont give up easily.

5. What is meant by factoring of purchase orders?

Factoring is an alternative to taking on a full loan from the bank, these are private lenders that provide funds for operations based on a percentage of sales but they charge a very high interest.

6. How can suppliers help in providing working capital?

While trying to gain capital supplies may be able to help. If they trust that the operations will be successful they may be inclined to open up a line of credit with their company.