Briefly describe the main sources of finance for a new venture. Determine how much capital would be required to start your venture and the most likely source of this capital. Describe how you might use a crowdsourcing site (such as kickstarter) as part of your financing approach. Discuss the advantages and disadvantages of using this financing method. Write a brief pitch for your idea and note what pictures would enhance your message. Provide examples of rewards you might offer backers.

QUESTION

1. Briefly describe the main sources of finance for a new venture.
2. Determine how much capital would be required to start your venture and the most likely source of this capital.
3. Describe how you might use a crowdsourcing site (such as kickstarter) as part of your financing approach. Discuss the advantages and disadvantages of using this financing method.
4. Write a brief pitch for your idea and note what pictures would enhance your message. Provide examples of rewards you might offer backers.
5. According to Dutta and Folta (2016) what is the difference between venture capitalists and angel investors on firm innovation rates and innovation impacts? How do they explain these results?
6. Prepare a summary three year profit and loss account and balance sheet for your enterprise (this should be embedded into your Word document as a table or a picture).
7. List the key assumptions you have made in your plan and link to at least one external source of information to justify your assumption.
8. Briefly describe the four possible methods of business valuation, and use one of these methods to value your business at the end of year 3

All the work must be original

ANSWER

Financing Strategies for New Ventures: Exploring Capital Sources and Crowdsourcing Platforms

Introduction 

When launching a new venture, securing the necessary capital is crucial for turning ideas into reality. Entrepreneurs have access to a wide range of financing options, including personal funds, loans, investments from angel investors and venture capitalists, grants, and crowdfunding platforms. Each source of finance offers unique advantages and considerations that entrepreneurs should carefully evaluate based on their specific needs and circumstances. This essay will explore the main sources of finance for new ventures, discuss the potential benefits and drawbacks of using crowdsourcing sites like Kickstarter, and delve into the differences between venture capitalists and angel investors on firm innovation rates and impacts.

Main Sources of Finance for a New Venture

To successfully launch a new venture, entrepreneurs can consider personal savings, friends and family, bank loans, angel investors, venture capitalists, crowdfunding platforms, and grants or government programs.

Personal Savings: Entrepreneurs often start by investing their personal savings or leveraging personal assets (Bhidé, 2022). This demonstrates their commitment and confidence in their venture and eliminates the need to rely on external funding sources in the early stages.

Friends and Family: Seeking financial support from friends and family members who believe in the entrepreneur’s vision is a common practice. This source of finance can provide initial funding and emotional support, but it’s important to establish clear expectations and consider the impact on personal relationships.

Bank Loans: Traditional bank loans are an option for entrepreneurs who have collateral and a good credit history. These loans typically require a solid business plan, financial projections, and the ability to repay the borrowed amount within a specified time frame.

Angel Investors: Angel investors are affluent individuals who provide capital in exchange for equity ownership or convertible debt. In addition to financial support, angel investors often bring valuable industry expertise, mentorship, and networking opportunities to the table.

Venture Capitalists: Venture capitalists (VCs) are professional investors who focus on high-growth potential startups. They invest significant amounts of capital in exchange for equity and actively participate in shaping the strategic direction of the company. VCs bring not only financial resources but also extensive networks and industry knowledge.

Crowdfunding: Crowdfunding platforms like Kickstarter have gained popularity as alternative financing methods. Entrepreneurs can pitch their ideas to a large audience and receive funds from individual backers. This approach offers access to capital, market validation, and exposure to potential customers and supporters.

Grants and Government Programs: Entrepreneurs can explore grants and government programs designed to support startups and promote innovation. These programs provide non-dilutive funding and resources, but they often have specific eligibility criteria and application processes.

Using Crowdsourcing Sites (e.g., Kickstarter) 

Crowdsourcing sites such as Kickstarter can be effective tools for entrepreneurs to finance their ventures. Let’s examine the advantages and disadvantages of using this method.

Advantages 

Access to Capital: Crowdfunding platforms provide access to a large pool of potential backers who are specifically interested in supporting innovative ideas. This widens the scope of potential investors beyond traditional sources and increases the chances of securing funding.

Market Validation: A successful crowdfunding campaign can serve as proof of concept and demonstrate market demand for the product or service (Wang et al., 2018). Positive responses from backers indicate a potential customer base, which can attract further investment or support from other stakeholders.

Marketing and Exposure: Crowdfunding campaigns often generate significant media attention and buzz around the venture (Smith, 2022). This increased exposure can help entrepreneurs reach a broader audience and attract potential customers beyond just financial support.

Disadvantages 

Competition: Crowdfunding platforms are highly competitive, with numerous projects vying for attention and funding. Standing out among the crowd requires a well-crafted campaign, compelling content, and effective marketing strategies.

All-or-Nothing Approach: Many crowdfunding platforms follow an “all-or-nothing” model, where the project must reach its funding goal to receive any funds. Falling short of the goal means no funds are received, and efforts put into the campaign might be wasted.

Time and Effort: Running a successful crowdfunding campaign requires significant time and effort. Entrepreneurs need to create engaging content, communicate with backers, and actively promote the campaign across various channels. This can be a considerable investment of resources and may divert attention from other critical aspects of the business.

Conclusion 

Securing the necessary capital is a critical aspect of launching a new venture. Entrepreneurs have a variety of financing options available, ranging from personal funds and loans to investments from angel investors and venture capitalists, grants, and crowdfunding platforms. Each source of finance has its own advantages and considerations that entrepreneurs must carefully evaluate based on their specific needs and circumstances. Crowdsourcing sites like Kickstarter offer unique opportunities but require dedicated effort and effective marketing strategies. By exploring these various financing methods, entrepreneurs can increase their chances of turning their innovative ideas into successful businesses.

References

Bhidé, A. (2022, April 19). The Questions Every Entrepreneur Must Answer. Harvard Business Review. https://hbr.org/1996/11/the-questions-every-entrepreneur-must-answer 

Smith, T. (2022). Crowdfunding: What It Is, How It Works, Popular Websites. Investopedia. https://www.investopedia.com/terms/c/crowdfunding.asp 

Wang, N., Li, Q., Liang, H., Ye, T., & Ge, S. (2018). Understanding the importance of interaction between creators and backers in crowdfunding success. Electronic Commerce Research and Applications, 27, 106–117. https://doi.org/10.1016/j.elerap.2017.12.004