There are various options for raising money to get your business up and running including bootstrapping, loans, and various types of capital.

Bootstrapping

This option lets you finance your business without having to raise equity from traditional sources or borrowing money from a bank. Bootstrapping can include:

• running your business from home
• paying employees with business shares in lieu of salary
• getting loans from family and friends
• taking out a home equity loan
• using grants to subsidise early-stage research, prototyping, etc
• leasing equipment, or premises rather than buying
• buying on consignment from suppliers
• applying for State or Commonwealth grants to subsidise your early-stage research and
• prototyping, business planning and marketing efforts.

Loans

These can be acquired from various sources, depending on how much you need and the time period of your loan. Loan sources include:

• banks (the largest providers of business finance)
• building societies and credit unions (although business lending isn't their core business)
• finance companies (offer a variety of options)
• finance brokers (may help you source funds, but charge a fee for their services)
• equity partners who are interested in investing in your business (that is, business angels, or venture capitalists)
• friends and family
• grants.

Sources of equity/capital

Typical examples of capital that can be received in return for an equity stake in your business include:

• corporate partnering
• business angels
• angel syndicates
• venture capital funds
• corporate venture capitalists
• an initial public offering.

Business angels

These are people who:

• have a high net worth
• invest $10,000 to $1 million
• invest at an early stage of the business
• take a hands-on approach to management
• acquire a small equity stake
• have business experience
• expect a 20 to 40 per cent required return in capital budgeting (otherwise known as the hurdle rate)
• face minimal due diligence.

Venture capitalists

These are people who:

• invest $1 to $20 million
• use superannuation/bank funds
• invest at a later stage of the business
• take an exit strategy focus
• acquire a large equity stake
• have financial expertise
• expect a 30 to 100 per cent required return in capital budgeting (otherwise known as the hurdle rate)
• face formal due diligence.

Exit strategies

An exit strategy is the method investors use to divest themselves of an interest in a business, taking their capital gains. You must be able to show them alternative, realistic exit strategies, including potential timings and milestones of achievement.

Exit strategy options include:

• trade sales
• merger and acquisition
• initial public offering (listing on the Stock Exchange)
• management buy out/management buy in (MBO/MBI).

Corporate governance

When preparing your business and your business systems to take on private capital, you'll need to comply with corporate and finance standards, known as corporate governance.