Chipman Mazzucco Emerson LLC

Alternatives for startup financing

Connecticut startups need money in order to survive. In the old days, that meant securing funding from a venture capitalist, or VC, in exchange for a significant portion of the company's equity. However, many of today's entrepreneurs are looking at alternative ways to raise funds that are not as costly and restrictive as VC funding.

One alternative way of financing a startup business is known as bootstrapping, which simply means that a startup pays its own way without help from VCs. This may require a reduction in projected sales until such time that sufficient cash can be generated. However, bootstrapping allows an entrepreneur to retain full ownership of a company and maintain complete control over its operations. Bootstrapping also forces a startup to live on a tight budget and scrutinize every expense, which can be an advantage in many cases.

Even when startup funding is needed, there are alternatives to venture capitalists. For instance, entrepreneurs can appeal directly to potential investors through international crowdfunding sites. In most crowdfunding cases, funding comes from a large group of people who each contribute a small amount of money. It is common for many of those contributors to become customers once the startup's products have been made commercially available.

Regardless of the type of funding, a basic understanding of business law is required in order to properly structure and operate a new company. For instance, the type of business structure can have a significant impact on future income taxes, liability issues and the ability to raise capital. However, many entrepreneurs are not skilled in business law. When that is the case, it might be good idea for an entrepreneur to enlist the services of a law firm with experience in business law and startup financing.

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