Entrepreneurship, Second Edition

10.4. Financing a New Venture

The first financing for your new business will come from you and your partners if you have any. It will be cash from your savings and probably from your credit card. According to the GEM study (see Chapter 1), the average amount of startup financing for a new business in the United States is about $150,000, of which more than 70% is provided by the entrepreneurs themselves. Perhaps you will also contribute tangible assets such as intellectual capital, like software and patents, and hard assets such as computer equipment. As the company gets under way, you will also be contributing to your company financially by working very long hours for substantially less than the salary you could get working for someone else; 7-day work weeks and 12-hour days are not unusual for entrepreneurs starting up businesses.

Before you turn to family and friends for startup money, you should look at all the possibilities of getting funding from other external sources, just as Jim Poss did. Sources might include the following:

Services at reduced rates (some accounting and laws firms offer reduced fees to startup companies as a way of getting new clients)

Vendor financing (getting favorable payment terms from suppliers)

Customer financing (getting down payments in advance of ...