Private Funding
From Entrepedia: The Entrepreneurship Wiki
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Personal Savings and Resources
Most new small businesses are at least partly funded by the savings of the founders. If you have sufficient personal resources they are worth considering as a funding option for two reasons: Firstly because you avoid paying loan interest and secondly, if the business fails, your will only have lost the investment you put in and not owe anyone else anything.
The use of personal resources also shows other future potential investors the level of commitment of you the entrepreneur and your belief in the viability of the business. Personal investment in the business also takes the form of working for little or no financial reward in the early days of operations in anticipation of future profitability.
Working Part Time
Rather than going full time immediately – which is an option many budding entrepreneurs jump into, it may pay to start by working part time on your new enterprise whilst also working either part time as well. Your wages will provide you with an income and some degree of security during the early days of the business and may help to improve the cash flow. The option of quitting the paid job will still be open to you when the business takes off.
Bootstrapping
More commonly known as "cutting costs" or "cost-saving," bootstrapping is an often overlooked way of getting extra money for your small business. It involves rigorously reviewing costs, as every penny saved means less money that needs not be borrowed. For instance, if a business discovers a way to reduce its variable production costs by 10p per unit and it produces 10,000 units per year, then it has effectively raised £1,000 over 1 year with no interest or capital repayments.
Alternatively it may be possible to begin your search for ways of raising money by downsizing some or your liabilities – such as your car and thereby freeing up some valuable capital. Avoiding the need to borrow is well worthwhile and merits serious consideration. So if you can possibly manage to get by without the BMW for a couple of years then sell it and buy a mini!
William H. Payne, of the Kauffman Foundation, advises bootstrapping entrepreneurs to "insist that the management team take minimal salary offset by generous equity compensation (options or outright equity grants)" until the venture is earning positive cash flow [1] Not only will this save you some cash, it should also provide some management incentives for your team.
Payne also advises that entrepreneurs launch early commercialisation of less-crucial products or services to help fund the development of the ultimate project while it is still in Beta testing. [1] For even more bootstrapping ideas to help you save money on your daily operations, check out Entrepedia's Top Tips on Saving Money.
Also, recently Heidi Roizen of Mobius Venture Capital suggested bootstrapping as a solid funding technique in the Stanford Entrepreneurial Thought Leaders Lecture series. Watch the complete video here.
