How do entrepreneurs obtain financing? An evaluation of available options and how they fit into the current entrepreneurial ecosystem

ABSTRACT

Given the high visibility of venture capital and private equity (VC/PE) in business news, entrepreneurs may be misled on the role and relative size of this financing model. In reality however, VC/PE is quite difficult to obtain, particularly for young entrepreneurs. With this in mind, I assess seven popular models for financing that may be of interest to entrepreneurial students. These seven models include: self-funding/bootstrapping; friends, family, and colleagues; banks; accelerators; angel investors; peer-to-peer (P2P) lending; and crowdfunding. Each model is summarized and evaluated for their advantages and disadvantages. A discussion of relevant resources for each model is also provided.

KEYWORDS:

• Entrepreneurship
• financing
• libraries
• small business
• startups

Notes

1. There is no clear way to determine this percentage for the reasons mentioned above. This estimate comes from personal research conducted using the following sources: a simple calculation based on the number of businesses formed annually according the Small Business Administration; analysis by Dileep Rao at Forbes (Rao, 2013) as well as responses to a related question at Quora from qualified respondents. (Quora, 2012).

2. Guillebeau's book argues that recent technological advances, particularly in software and digital communication, have enabled individuals to start businesses at historically low costs. The book includes low-cost business models and case studies of entrepreneurs who took the low-cost, low-risk approach to starting their business.