Question

Explain briefly on the source of capital in managing new venture management and give 1 example and explain it (Exp, venture capitalist). Not less than 300 words.

Answer 1

Source of capital in new venture

Many entrepreneurs do not know where to acquire funding when starting out or expanding. If you know where to look, you'll find that there are many different sources for entrepreneurs to raise capital.

However, not every source of capital is suitable for every business. An entrepreneur should choose one which meets the capital structure that best fits their business. A business' capital structure is the way that it is funded, either through debt (loans) or equity (shares sold to investors) financing.

Financial backing usually includes loans, grants, or investor funding. Some of the top ways to raise capital are through angel investors, venture capitalists, government grants, and small business loans. There are other methods for financing such as credit cards or invoice financing, but these should be used only if you need cash quickly and know the risks involved.

List those sources of capital for new ventures

1) Angel Investor

2) Venture Capitalist

3) Small business loan

4) Government grants

5) Crowdfunding

6) Microloans

7) Invoice Factoring

8) Credit Cards

Explanation for:-

a)Angel Investors

Angel investors are generally individuals or groups who provide capital from their personal assets to assist you with starting your business. These types of investors are looking for startups that have good potential for earnings.

Since they are investors, you'll be expected to present them with a portfolio that is favorable. This differs from venture capitalists, who are more interested in organizations that are already doing well but need more sources of capital.

b)Invoice Factoring

Sometimes referred to as invoice advances, invoice factoring is a process where an entrepreneur agrees with a lender to sell their invoices due, and let the lender collect future payment by the customers.

This works by a lender purchasing your open invoices from you for a reduced amount, then collecting the amount that is due. For example, if you had a sale with receivables pending for 15,000 you could sell it to a lender who might buy it for 14,000. You receive cash, and the lender receives the $15,000 when it is paid.

This is a source of capital you might use if you were very much in need of capital, as you would lose 1,000 in the transaction.