Startup financing refers to the process by which a new company acquires the initial funds to set up the operation. The funds usually needed are used for purposes such as acquisition of the assets that are required for the operation. This is usually considered the most difficult part of starting up a business, particularly in the case of scarce funds.
Different methods can be used for startup financing. One of these is through the use of venture capital. Venture capitalists typically invest in a new idea or business model by providing large sums of cash for the startup, in exchange for a major portion of the company. These are usually risky investments, but which potentially result in a large payoff later.
Financing can also be acquired through the use of credit. There are many ways of acquiring credit, such as by getting a bank loan or borrowing money from friends and family members. Getting credit from a financial institution such as a bank is usually a slow process that requires the individual to provide proof that they will be able to pay back the loan, as well as providing more information about the business and how it will be managed.
When getting startup financing from any other source of funds other than one’s own savings, there is usually the need to come to various forms of agreements. These are usually in the form of legal documents that are signed by the creditor and the lender. The fact that they tend to be detailed necessitates the need for an attorney to draft them.