Here’s how start-ups get funded before they’re ready for venture capital

  • According to the SBA, entrepreneurs use personal savings more than any other source of start-up financing.
  • Crowdfunding is a new source of capital for founders, but there’s a big difference between equity fundraising online, rewards-based crowdfunding and peer-to-peer lending.

19 Hours Ago

Millennial working on computer

Aly Song | Reuters

Fledgling businesses rarely command seed or venture funding right out of the gate. But they still need cash to get started.

While entrepreneurs have more capital sources than ever before, they’re also faced with a ton of misinformation.

For example, a PwC report last month raved about crowdfunding and how it’s helping female founders get ahead in business. The report lumps Kickstarter-style campaigns together with peer-to-peer lending and equity fundraising online. It regards these as a single source of capital, which it calls crowdfunding.

In reality, there’s a big difference between securing a loan for your business and winning over backers on a site like Kickstarter. Meanwhile, equity crowdfunding, enabled by sites like AngelList, CircleUp and SeedInvest, is generally for businesses that are further along.

On the equity sites, founders provide a business plan, including information about early sales and user traction. Investors can browse and evaluate deals. After a mutual due diligence process, start-ups issue stock to investors.

Here are the real ways that most entrepreneurs get money at the very start.

Source: Here’s how start-ups get funded before they’re ready for venture capital

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