Financial Resources - How to Build a Startup

Summary

The script discusses various financial strategies for starting a tech-based startup. It suggests initial funding through credit cards, friends and family, crowdfunding, and local angel investors. For minimal initial costs, leveraging a laptop and AWS can start app development. However, the script emphasizes the importance of considering future capital needs for customer relationship building and business growth. It also mentions the potential for SBIR/STTR grants, government financing, bank leasing, factoring, and vendor financing to support the business lifecycle.

Takeaways

• 💡 Bootstrapping is possible for web and mobile startups using credit cards, friends and family, or crowdfunding platforms like Kickstarter.
• 🤝 Local angels or individual investors can provide initial funding for startups without the need for professional venture capital.
• 💻 Minimal initial investment can be enough to start developing an app with just a laptop and an Amazon Web Services account.
• 💼 Financial planning should include considerations for customer relationship management and the costs associated with sales channels.
• 🔮 It's important to forecast future capital needs for different stages of the company's lifecycle.
• 🏢 For ventures requiring significant capital, approaching venture capital firms or corporate partners is a likely route.
• 🏦 Government financing options, such as SBIR or STTR grants, can provide substantial funding for commercializing technology from universities.
• 💼 The Small Business Administration (SBA) in the U.S. offers grants to help small businesses get started.
• 🏦 Once operational, startups can leverage bank financing for leasing expensive equipment instead of outright purchase.
• 📝 With confirmed purchase orders, factoring can provide cash advances at a discount based on the order value, useful for managing cash flow.
• 🛍️ Vendor financing can be an option for startups needing to purchase expensive components, allowing for deferred payment or loans from suppliers.

Q & A

What are some initial funding options for a startup in the tech industry?

Initial funding options for a tech startup can include using personal credit cards, borrowing from friends and family, crowdfunding platforms like Kickstarter, and investments from local angels who are not professional venture capitalists but may make small investments.

How can a startup with minimal requirements get started?

A startup with minimal requirements, such as needing just a laptop and an Amazon Web Services account, can begin developing an app or service with relatively low initial costs.

What should a startup consider beyond just the initial coding of an app?

Beyond coding, a startup should consider financial resources for creating customer relationships, sustaining and growing the business, and the costs associated with their chosen channel.

Why is it important for a startup to think about future capital needs?

It's important for a startup to pre-compute future capital needs to ensure they have sufficient financial resources for scaling their operations, covering unexpected costs, and maintaining business continuity throughout the company's life cycle.

What types of investments might a startup require if it operates in a physical channel or enterprise?

A startup in a physical channel or enterprise might require millions of dollars in investments, likely approaching venture capital firms or corporate partners for funding.

What government funding options are available for startups in the United States?

In the United States, startups can explore Small Business Innovation Research (SBIR) or Small Technology Transfer Research (STTR) grants, which can be as large as half a million dollars, and grants offered by the Small Business Administration.

What is the role of SBIR and STTR grants for university-based startups?

SBIR and STTR grants are government funding mechanisms designed to help commercialize technologies from universities, providing significant capital for startups to develop and bring their innovations to market.

How can a startup leverage its purchase orders for financial benefits?

A startup can use confirmed purchase orders from customers to obtain factoring services, where a factor lends money against the purchase order at a discount, providing immediate cash flow.

What is factoring and how can it benefit a startup with delayed customer payments?

Factoring is a financial service where a business sells its purchase orders to a factor at a discount in exchange for immediate cash. This is beneficial for startups that have purchase orders but face delayed payments from customers.

How can a startup manage the costs of expensive components or equipment?

A startup can manage the costs of expensive components or equipment by negotiating vendor financing, which may include deferred payments, loans, or other financial arrangements to help conserve cash.

What alternative financing options are available for a startup once it is operational and generating revenue?

Once operational, a startup can explore options such as bank financing for leasing expensive equipment, factoring for immediate cash flow from purchase orders, and vendor financing for purchasing components or equipment.

Outlines

00:00

💼 Bootstrapping a Startup: Financial Resources and Strategies

This paragraph discusses various methods to finance a startup, emphasizing the potential of starting with personal credit cards, friends and family, and crowdfunding platforms like Quickstarter. It mentions the possibility of launching a web or mobile app with minimal resources and the importance of considering customer relationships and business growth when planning financial needs. The paragraph also touches on the need for further capital in the company's lifecycle, especially for physical or enterprise products requiring significant investment, and suggests approaching venture capital firms or corporate partners. It introduces the concept of government financing, such as SBIR or STTR grants, and Small Business Administration grants, as well as international equivalents. Finally, the paragraph outlines alternative financing options like bank loans for equipment leasing, factoring for purchase orders, and vendor financing for expensive components.

Keywords

💡Start-up

A start-up refers to a new business venture that is typically seeking to develop and scale rapidly. In the context of the video, it is the central subject, as the script discusses various ways to finance and grow a new business. The theme revolves around the challenges and strategies for getting a start-up off the ground.

💡Financial Resources

Financial resources are the funds and capital required to initiate and sustain a business operation. The video emphasizes the importance of financial resources for start-ups, highlighting different methods to secure them, such as credit cards, crowdfunding, and angel investors.

💡Credit Cards

Credit cards are a form of payment that allows individuals to borrow money to make purchases. In the script, they are mentioned as a potential source of initial funding for a start-up, suggesting that founders might use personal credit to finance their early operations.

💡Crowdfunding

Crowdfunding is a method of raising funds by collecting small amounts of money from a large number of people, typically via the internet. The script mentions platforms like 'quick starter' as a means for start-ups to gather financial support from the public.

💡Angel Investors

Angel investors are affluent individuals who provide capital for start-ups, often in exchange for equity or convertible debt. The video describes them as non-professional venture capitalists who might make small investments in start-ups.

💡Amazon Web Services (AWS)

Amazon Web Services is a subsidiary of Amazon that provides on-demand cloud computing platforms and APIs to individuals, companies, and governments. The script uses AWS as an example of how a start-up can begin operations with minimal physical resources, needing only a laptop and an AWS account to develop an app.

💡SBIR/STTR Grants

SBIR (Small Business Innovation Research) and STTR (Small Business Technology Transfer) are U.S. government programs that provide funding to small businesses for research and development projects. The video mentions these grants as a source of financial support for commercializing a company's technology or products.

💡Small Business Administration (SBA)

The Small Business Administration is an independent agency of the U.S. federal government that provides support to entrepreneurs and small businesses. The script refers to the SBA as offering grants to help start and grow businesses.

💡Lease Financing

Lease financing is a method of acquiring the use of physical assets without purchasing them outright. The video discusses how start-ups can use lease financing to acquire expensive equipment without the need for upfront cash payments.

💡Purchase Orders

Purchase orders are documents issued by a buyer to a seller, indicating the details of goods or services to be supplied. The script explains that confirmed purchase orders can be used to secure funding from factoring companies, which provide cash advances based on the expected revenue from those orders.

💡Factoring

Factoring is a financial service where a business sells its accounts receivable (i.e., money owed to the business) to a third party (called a factor) at a discount. The video describes factoring as a way for start-ups to obtain immediate cash from outstanding customer invoices.

💡Vendor Financing

Vendor financing is when a supplier provides funds to a buyer to purchase goods or services, often with deferred payment terms. The script mentions this as a strategy where vendors may offer financing to start-ups to help them conserve cash while purchasing necessary components.

Highlights

Starting a web or mobile startup may be feasible with personal credit cards, friends and family funding, or crowdfunding platforms like Kickstarter.

Local angel investors, who are not professional venture capitalists, can provide small investments to startups.

A laptop and Amazon Web Services account can be enough to start developing an app.

Financial calculations should consider the costs of creating and maintaining customer relationships and business growth.

Startups may need to consider the life cycle of their company and the capital required at different stages.

Venture capital firms or corporate partners are more likely to be approached for physical channel or enterprise startups requiring millions of dollars.

Government financing, such as SBIR or STTR grants, can provide significant funding for commercializing a company or technology.

The Small Business Administration in the United States offers grants to help small businesses get started.

Government funds in other countries may offer similar support for startups.

Once generating revenue, startups can explore alternative financing options like bank loans for equipment leasing.

Confirmed purchase orders can be used for factoring, where businesses lend money at a discount based on the order's value.

Vendor financing can be an option for startups needing to purchase expensive components without upfront cash.

Factoring is a common financing method in industries where cash flow is critical.

Startups should be mindful of the various financial resources available at different stages of their business lifecycle.

The cost of channels and customer relationship management is an essential part of financial planning for startups.

Pre-computing the capital needs for different life cycle stages can help startups plan their financial strategy effectively.

Startups originating from universities may be eligible for specific grants and funding opportunities.

Transcripts

And that brings us to financial resources, is how are we going to get this start-up off the ground?

If you're doing a web, mobile, ??? seem quite possible

that you could get the company started with your credit cards, friends and family,

crowdfunding like quick starter, local angels that is investors

who are not professional venture capitalists, but might make some small investments.

Again, if all you need is a laptop and Amazon Web Services account,

you could be up and running developing an app

but just keep in mind that when you're asked to do the financial calculations,

there might be great to actually code the app but how are you going to create

customer relationships and get, keep, and grow your business,

and so financial resources actually gets you back to thinking about other demand creation activities

in customer relationships and the cost of your channel as well,

so while you could get started here, it's interesting to start pre-computing

what other amounts of capital I will need later on in the life cycle of my company.

If if you have something in a physical channel or something in the enterprise

that requires millions of dollars, I just thought, you're more than likely

to approach venture capital firms or corporate partners,

so not only can you get money from corporate partners,

from the United States, there's some government financing that's available that

??? coming from a university, the first place I would ??? what are called, SBIR or STTR grants

and later be as large as half a million dollars to commercialize your company or your technology.

Also, the small business administration in the United States offers grants

to small businesses to start their companies.

In your country, there might be the equivalent of government fund.

Now, once your start-up is up and running and you're generating orders and revenue,

there are some other alternatives, so for example, you might be able to go to a bank

and hand them finance, the lease of expensive physical equipment.

You're buying tons of computers or vehicles or manufacturing a ???.

You might actually be able to get what's called the lease lines, so you don't have to pay cash for them.

The second is if you actually have purchase orders from customers,

but these customers don't pay for an extended period of time,

60, 90, 180 days, you could actually take those confirmed purchase orders

to keep what's called factors and factors make a business

out of kind of lending you money on that purchase order at a discount.

And so if you need cash, factoring is a normal part of financing in certain industries ???

And then finally, if you're buying expensive component,

typically hardware in building your system, the vendor clearly wants to sell that equipment to you

but you might not have that cash upfront or cash is more important than your mother right now

and your start-up, and so you're trying to conserve it.

You sometimes can actually get a venture to finance or defer or loan you

the money to buy their own ??? and that's another way to kind of preserve your financial resources.