Question

Describe, explain, and give an appropriate example of the three sources of capital in new venture creation. (source of capital-exp: personal, friends and relatives, venture capitalists and bank).

Answer 1

The three sources of capital in a new venture can be described as follows:

- angel investors- This is the simplest form of source for capital ventures. These are individuals who help business ventures with capital from their personal assets. They understand that the startup has the potential of earning profits and sustaining business and hence invest in them. They usually have simple rules of return of this investment which is mutually agreed with the new entrepreneur.  Examples can be friends, family and relatives.

- venture capitalists- these are group pf people who establish organizations to provide loans to such investments. They look for startups that look promising or businesses that are somewhat established. They usually demand high returns to their loans from these businesses and want to have their role in mentoring the business practices and have a say in the business decisions too.

- small business loans- SBA or small business administrations have been set up for assisting the business starters to lend them funds for investments in the business. The loan amount is small and also the rates of interests of these loans are lower than the personal loan rates. These are government-assisted loans and are guaranteed by SBA.

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