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Entrepreneurial Finance: Get the Exclusive Inside Scoop!

3 Min Read
April 25, 2023

Technological advances, changing mindsets, and a growing investment landscape made it perfect for entrepreneurial ventures to thrive. Yet, two out of three start-ups never show a positive return. One of the most common reasons for startup failure is the inability to raise new capital. To succeed against the odds, entrepreneurs require an understanding of company ownership, valuation methods, and the different forms of investment methods. This is where entrepreneurial finance comes in. 

What is entrepreneurial finance?

While corporate finance focuses on existing organizations and the challenges they face, entrepreneurial finance is the study of value and resource allocation for new organizations. Moreover, it is the process of acquiring capital and making financial decisions for a new venture or startup, and it addresses the owner's challenges in financing the company. This includes how much money can and should be raised, when it should be raised, which sources of funding are viable, and how funding contracts and exit decisions are arranged. By doing so, the business can see whether it can become financially sustainable or not.

When starting a company, entrepreneurs need to be flexible and fast-moving in order to acquire the finance needed for scaling operations, hiring employees, and turning their vision into a reality. This involves approaching investors and seeking loans.

Here are several sources of capital financing for firms, each of which uses a different valuation method and investment approach:

1. Venture capital 

Venture capital (VC) is a form of private equity. Fast-growing start-ups and small organizations use this with the intention of selling their shares in the middle-stage. They take on high risks and expect high returns when investing. The funds generally come from well-off investors, investment banks, and other forms of financial institutions. Venture capitalists don't always provide investment in the form of financial funding; it can also come in the form of managerial or technological expertise. 

2. Crowdfunding

Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new business venture. Furthermore, it uses social media and crowdfunding websites to connect investors and entrepreneurs. There are four main types of crowdfunding by new ventures: equity crowdfunding, reward-based crowdfunding, donation-based crowdfunding, and debt-securities crowdfunding. 

3. Financial Bootstrapping

Bootstrapping is when an entrepreneur starts and builds a company from personal finances or the operating revenue of the new company. In contrast with using venture capital, bootstrapping can be beneficial because the entrepreneur has complete control over all decisions. On the negative side, bootstrapping could expose the business owner to financial risk and might not provide enough funding for the company to grow successfully at a reasonable rate.

What skills does an entrepreneurial finance expert needs?

In order to successfully grow a business, entrepreneurs need to possess a strong financial skill set in order to persuade investors to provide funding and turn their vision into a reality. To develop these skills, they can start by taking classes or courses such as:

  • Financial Literacy
  • Financial Modeling
  • Sources of Funding
  • Company Valuation and Exit Planning
  • Negotiation of Terms

Now that you've gained an insight into entrepreneurial finance, are you interested in gaining a more in-depth understanding of it? Knowing that the financial market is extremely fast-paced, it's important to continuously develop your skills and financial understanding to keep up with the latest developments.