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How to Decide the Best Way to Fund Your Business – ReadWrite

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Frank Landman


No matter what kind of business you’re starting, what your growth model is, or what kind of team you’re starting with, you’re going to need money to get started. These days, it’s possible to launch a startup on a razor-thin budget, working remotely so you don’t have to pay for an office, scrapping together resources you already have, and working with the smallest team possible. Even then, you’ll need thousands, if not tens of thousands of dollars to get what you need to build early momentum.

Fortunately, there are dozens of different ways you can fund your business. But this presents a problem of its own. With so many possibilities, and all of them having strengths and weaknesses worth considering, how do you ultimately decide the “best” way to fund your business?

Funding Options for Your Business

You can start by charting out some of the most common and popular ways to fund a business.

These include:

  • Venture capital. One of the most popular choices for startup entrepreneurs is working with a venture capitalist (VC). VCs can be individuals or firms, dedicated to investing in small companies. VCs tend to have a lot of available capital, making them an ideal choice if you’re looking for a big injection of cash – though they broker smaller deals as well. Oftentimes, the VC will provide funding in exchange for equity in the company, forcing you to share profits later on and/or forfeit some degree of control. Additionally, VCs can be extremely competitive, making it difficult to stand out from the competition.
  • Angel investors. An angel investor is an individual (and usually a wealthy one) who is willing to invest in small businesses. Angel investors aren’t as dedicated to the practice as VCs, so there’s often less competition for their attention. However, they may be harder to find, depending on where you live. Still, angel investors work much like VCs, providing promising young ventures with money in exchange for partial equity and/or some control in the business. Some angel investors also serve in a mentoring capacity, providing direction and advice to growing young entrepreneurs.
  • Crowdfunding. Crowdfunding is another popular option – and one that wasn’t available 15 years ago. The idea here is to attract small amounts of funding from a large number of micro-investors, rather than working with one wealthy individual or large firm. This distributed model often makes it easier to get the funds you need, but there are a couple of logistical hurdles. For starters, crowdfunding is restricted; you may find it difficult to pursue equity crowdfunding, and some popular crowdfunding platforms are particular about the types of projects they host. You’ll also need to think carefully about how you market your business; your positioning will play a massive role in whether contributors decide to donate to your venture. You may also be beholden to your investors in some way, responsible for fulfilling a promise with the money you’ve received.
  • Personal funding. If you like the idea of being more independent, you can attempt to fund the business yourself. If you’ve accumulated wealth over the years, this may be a straightforward practice. Otherwise, you’ll need to get creative to summon the money necessary to get your business moving. For example, you could sell a major asset (like a home) and use the proceeds to launch your startup. You could also cash in a 401(k) or similar retirement platform (though this isn’t recommended).
  • Grants and loans. Sometimes, you can fund a business with the help of grants and loans. Resources like the Small Business Administration and local Chambers of Commerce can help connect you with special programs meant to incentivize business creation. On top of that, you can work with your bank to review loan options, and potentially open a floating line of credit you can tap into as you continue to help your business grow. Of course, the downside here is that many loans require repayment with interest, and if your credit isn’t strong or if you borrow too much, it can eventually become a burden.
  • Special loans. Depending on your personal circumstances, you may qualify for special types of loans that can provide you with capital immediately – and not require you to pay interest for some time. For example, if you’re in the middle of a personal injury claim, you may qualify for pre-settlement legal funding, which can give you capital immediately that you won’t have to pay back right away. Use these proceeds carefully if you decide to go this route.
  • Partnerships. You may also choose to fund your business with the help of a partnership. Securing a business partner who has more money to put into the business could be exactly the cash injection you need to make the startup work. Of course, that also means you’ll need to feel comfortable working with a partner over the long-term development of your company.

Determining Your Priorities

Clearly, each of these options has something going for it – and many of them have significant drawbacks that weaken them. So how are you supposed to make the decision?

  • Capital requirements. First, lay out the capital requirements of your business? This may seem like an obvious question, but too many entrepreneurs enter this space with only a vague idea of what they truly need. Spend some time developing a business plan and sketching out the financial model. Be prepared to ask only for the funding you need.
  • Desire for control. How much control do you want to retain over your business? Would you be okay with heeding the direction of investors? How much power are you willing to forfeit to get the funding you need?
  • Type of business. What kind of business are you hoping to start? Is there a flexible approach that can help you get access to more options? For example, can you start as a local company before expanding nationally to reduce your initial capital requirements?
  • Personal savings. How much do you currently have available in personal savings? Are you capable of funding this business independently, or are you totally relying on external sources of funding? How much would it take to close the gap?
  • Risk tolerance. Consider your personal and business risk tolerance. Do you have a backup plan in place? What would happen if things go wrong?
  • Hybrid options. There are usually few restrictions on the number of funding methods you can pursue simultaneously. If you want to compensate for the weaknesses of one funding method, consider simply supplementing it with another, complementary method.

Getting Started

If you’re just getting started and you’re need help making this decision, these are the most important steps you should take:

  • Develop your business plan. Take the time to write your business plan and pay especially close attention to the financial section. Here, you’ll be able to calculate exactly how much funding you need, what your risk tolerance is, and more.
  • Play with your options. Spend some time evaluating your options. Consider the primary sources of funding available to you and how they might affect the management and future growth of your business. Compare these hypothetical situations to each other and see if one stands out above the rest.
  • Network. Finally, spend time professional networking. Building your network is never a bad thing, and it can introduce you to many potential partners and investors. If nothing else, you’ll meet peer entrepreneurs and business owners who can share their experiences and give you perspective on the world of funding.

Choosing a mode of funding for your business is one of the most stressful and impactful decisions you’ll make as a new entrepreneur. But if you put the time into this decision and take it seriously, it can help support your startup’s growth for years to come.

Frank Landman

Frank is a freelance journalist who has worked in various editorial capacities for over 10 years. He covers trends in technology as they relate to business.

Politics

Fintech Kennek raises $12.5M seed round to digitize lending

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Google eyed for $2 billion Anthropic deal after major Amazon play


London-based fintech startup Kennek has raised $12.5 million in seed funding to expand its lending operating system.

According to an Oct. 10 tech.eu report, the round was led by HV Capital and included participation from Dutch Founders Fund, AlbionVC, FFVC, Plug & Play Ventures, and Syndicate One. Kennek offers software-as-a-service tools to help non-bank lenders streamline their operations using open banking, open finance, and payments.

The platform aims to automate time-consuming manual tasks and consolidate fragmented data to simplify lending. Xavier De Pauw, founder of Kennek said:

“Until kennek, lenders had to devote countless hours to menial operational tasks and deal with jumbled and hard-coded data – which makes every other part of lending a headache. As former lenders ourselves, we lived and breathed these frustrations, and built kennek to make them a thing of the past.”

The company said the latest funding round was oversubscribed and closed quickly despite the challenging fundraising environment. The new capital will be used to expand Kennek’s engineering team and strengthen its market position in the UK while exploring expansion into other European markets. Barbod Namini, Partner at lead investor HV Capital, commented on the investment:

“Kennek has developed an ambitious and genuinely unique proposition which we think can be the foundation of the entire alternative lending space. […] It is a complicated market and a solution that brings together all information and stakeholders onto a single platform is highly compelling for both lenders & the ecosystem as a whole.”

The fintech lending space has grown rapidly in recent years, but many lenders still rely on legacy systems and manual processes that limit efficiency and scalability. Kennek aims to leverage open banking and data integration to provide lenders with a more streamlined, automated lending experience.

The seed funding will allow the London-based startup to continue developing its platform and expanding its team to meet demand from non-bank lenders looking to digitize operations. Kennek’s focus on the UK and Europe also comes amid rising adoption of open banking and open finance in the regions.

Featured Image Credit: Photo from Kennek.io; Thank you!

Radek Zielinski

Radek Zielinski is an experienced technology and financial journalist with a passion for cybersecurity and futurology.

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Politics

Fortune 500’s race for generative AI breakthroughs

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Deanna Ritchie


As excitement around generative AI grows, Fortune 500 companies, including Goldman Sachs, are carefully examining the possible applications of this technology. A recent survey of U.S. executives indicated that 60% believe generative AI will substantially impact their businesses in the long term. However, they anticipate a one to two-year timeframe before implementing their initial solutions. This optimism stems from the potential of generative AI to revolutionize various aspects of businesses, from enhancing customer experiences to optimizing internal processes. In the short term, companies will likely focus on pilot projects and experimentation, gradually integrating generative AI into their operations as they witness its positive influence on efficiency and profitability.

Goldman Sachs’ Cautious Approach to Implementing Generative AI

In a recent interview, Goldman Sachs CIO Marco Argenti revealed that the firm has not yet implemented any generative AI use cases. Instead, the company focuses on experimentation and setting high standards before adopting the technology. Argenti recognized the desire for outcomes in areas like developer and operational efficiency but emphasized ensuring precision before putting experimental AI use cases into production.

According to Argenti, striking the right balance between driving innovation and maintaining accuracy is crucial for successfully integrating generative AI within the firm. Goldman Sachs intends to continue exploring this emerging technology’s potential benefits and applications while diligently assessing risks to ensure it meets the company’s stringent quality standards.

One possible application for Goldman Sachs is in software development, where the company has observed a 20-40% productivity increase during its trials. The goal is for 1,000 developers to utilize generative AI tools by year’s end. However, Argenti emphasized that a well-defined expectation of return on investment is necessary before fully integrating generative AI into production.

To achieve this, the company plans to implement a systematic and strategic approach to adopting generative AI, ensuring that it complements and enhances the skills of its developers. Additionally, Goldman Sachs intends to evaluate the long-term impact of generative AI on their software development processes and the overall quality of the applications being developed.

Goldman Sachs’ approach to AI implementation goes beyond merely executing models. The firm has created a platform encompassing technical, legal, and compliance assessments to filter out improper content and keep track of all interactions. This comprehensive system ensures seamless integration of artificial intelligence in operations while adhering to regulatory standards and maintaining client confidentiality. Moreover, the platform continuously improves and adapts its algorithms, allowing Goldman Sachs to stay at the forefront of technology and offer its clients the most efficient and secure services.

Featured Image Credit: Photo by Google DeepMind; Pexels; Thank you!

Deanna Ritchie

Managing Editor at ReadWrite

Deanna is the Managing Editor at ReadWrite. Previously she worked as the Editor in Chief for Startup Grind and has over 20+ years of experience in content management and content development.

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Politics

UK seizes web3 opportunity simplifying crypto regulations

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Deanna Ritchie


As Web3 companies increasingly consider leaving the United States due to regulatory ambiguity, the United Kingdom must simplify its cryptocurrency regulations to attract these businesses. The conservative think tank Policy Exchange recently released a report detailing ten suggestions for improving Web3 regulation in the country. Among the recommendations are reducing liability for token holders in decentralized autonomous organizations (DAOs) and encouraging the Financial Conduct Authority (FCA) to adopt alternative Know Your Customer (KYC) methodologies, such as digital identities and blockchain analytics tools. These suggestions aim to position the UK as a hub for Web3 innovation and attract blockchain-based businesses looking for a more conducive regulatory environment.

Streamlining Cryptocurrency Regulations for Innovation

To make it easier for emerging Web3 companies to navigate existing legal frameworks and contribute to the UK’s digital economy growth, the government must streamline cryptocurrency regulations and adopt forward-looking approaches. By making the regulatory landscape clear and straightforward, the UK can create an environment that fosters innovation, growth, and competitiveness in the global fintech industry.

The Policy Exchange report also recommends not weakening self-hosted wallets or treating proof-of-stake (PoS) services as financial services. This approach aims to protect the fundamental principles of decentralization and user autonomy while strongly emphasizing security and regulatory compliance. By doing so, the UK can nurture an environment that encourages innovation and the continued growth of blockchain technology.

Despite recent strict measures by UK authorities, such as His Majesty’s Treasury and the FCA, toward the digital assets sector, the proposed changes in the Policy Exchange report strive to make the UK a more attractive location for Web3 enterprises. By adopting these suggestions, the UK can demonstrate its commitment to fostering innovation in the rapidly evolving blockchain and cryptocurrency industries while ensuring a robust and transparent regulatory environment.

The ongoing uncertainty surrounding cryptocurrency regulations in various countries has prompted Web3 companies to explore alternative jurisdictions with more precise legal frameworks. As the United States grapples with regulatory ambiguity, the United Kingdom can position itself as a hub for Web3 innovation by simplifying and streamlining its cryptocurrency regulations.

Featured Image Credit: Photo by Jonathan Borba; Pexels; Thank you!

Deanna Ritchie

Managing Editor at ReadWrite

Deanna is the Managing Editor at ReadWrite. Previously she worked as the Editor in Chief for Startup Grind and has over 20+ years of experience in content management and content development.

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