Normally startup capital brings up thoughts of corporate credit in the form of venture capitalist or even an angel capitalist, a group of people or a single rich person who finds your idea so compelling they offer to fund it. These thought are more of a dream than a plan. Venture and angel capitalist are really out there, but they have high standards and are very careful about who they take on and how much they invest.
Startup capital usually involves considerable self investment in the form of money and work. Ideas are cheap, execution is expensive. Unless you can show you can execute no one will invest in your business. The people I know who have attracted venture capitalist had great Startup capital. They started with good ideas and developed them with their own money and time. The next step was a grant. Government grants are available in many areas. My friends got money to develop models to improve bio weapons testing. They wanted to do pharmaceuticals, but this slight detour gave them a chance to fund parallel research. The next step was to take the new product to the market. With a real cash flow they were able to attract a few investors and then a venture capitalist.
Of course when people give you money, they also give expectations. At each step the governance of this company changed. They added controls on spending, reports and accounting. No longer were a few guys just working in a lab. Startup capital changes how you govern your business. When I last talked with these people, they were preparing to launch an IPO. At each stage of financing the equity owned by the principal researchers saw their equity cut in half. Too many layers and the talent will leave and go somewhere else. If you've ever wondered what happened to that cool innovative start up, now you know.
There are exceptions. Google developed faster than usual and with the cash flow they were able get by with less infusion. The developed the old fashion way. The really did earn it. They also did something really new fashioned. Instead of having a large bank negotiate the IPO and sell the initial offering, they auctioned it off. With the big name of Google the price shot up and Google earned far more on the IPO than the normally would have. They have been able to retain the intellectuals and innovators while building the company. It is an exciting model, but requires a very rapid and successful startup. Usually the layers of startup capital improve the product by adding needed management skills. Venture capitalists especially look for great ideas, hard working people who are heavily invested and who could dramatically improve with proper business management.
This union of ideas, execution and business skills is very rare. Innovators are rarely interested in business structures, accounting and financing. They are focused on the cool dreams they are building. A little intellectual diversity can greatly improve a startup and protect them from a bad agreement with a partner, venture capitalist or even a bad loan. I recommend everyone take a class in economics, accounting and corporate financing. These three classes do more to explain how the world works than any philosophy or sociology class you could ever take,
Conversely I tell my business friends to start reading National Geographic, Scientific American and to consider taking a chemistry or physics class. Too many opportunities are lost because people can't understand the core of the business. You don't need a doctorate to talk to a chemical company, but a good understanding of chemistry is essential for you to understand the risk of funding a startup of taking a job with one.
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