Answer to Question #305608 in Finance for Robert

Question

Discuss key sources of innovative funding citing relevant examples (10 mrks)

Answer 1

The term "innovative funding" refers to a variety of non-traditional techniques for raising additional financing for development support through "Innovative" ventures such as micro-contributions, levies, public-private cooperation, and market-based financial activities. Businesses may be able to obtain capital through acquiring equity financing, appealing for governmental or university support, or contemplating an initial public offering. It is critical for starting firms to prepare for expansion in order to accomplish their economic goals.

Some of the essential sources of funding for innovative initiatives are:

Your own money.

You must have enough enthusiasm in your firm to fund it personally if you want anybody else, even government agencies or financiers, to do so. When approaching investors, whether they are relatives and friends, government agencies, banks, the general public, or equity investors, one of the first questions they typically ask how much capital you have invested in the firm. You may have savings, equity in property investment and automobiles, precious possessions, and investments as assets. You can liquidate certain assets to obtain cash for your company and use others as security for a business loan.

Governmental grants.

Grants are available from various levels of government for a range of objectives and businesses.

Relatives and friends.

Approaching relatives for a loan might lead to flexible payment terms and immediate availability of funds. Make your agreement in writing, since failure to do so might jeopardize family connections. When arranging for a loan, the preparations should be conducted in a professional way.

Debt.

Debt funding is borrowing money from a third party and pledging to repay it with interests at a later period. The most prevalent source of debt is a loan from a banking institution or a credit union.

Equity.

Funding by equity is the acquisition of cash from a third party in exchange for a stake in the company. Many forms of equity funding exist, the most popular of whom are friends and family, business angels, and private equity investors.

Business angles.

A business angel is a high income earner who invests personally in entrepreneurial businesses in exchange for stock. It is particularly 'smart money,' where experience, in addition to capital, gives worth to the investee's firm. They are not a nonprofit or following a pastime by offering 'angel finance.' They desire a positive payback on investment, either in the form of earnings or a stake in the successfully marketed enterprise.

Crowdfunding.

Crowdfunding is the technique of soliciting money from a huge number of persons to sponsor a business or endeavor. It allows businesspeople to receive market verification while avoiding the risk of handing up ownership before moving all in and bringing a new idea to market. Crowdfunding internet sites are widely used for this.

Capital for risk-taking.

Venture capital are financial managers that invest other individual's funds in private companies in exchange for a stake in the company. This equity is then freed through an exit plan, such as listing the company on the stock market, in order to provide the large financial return expected by the fund management. Venture capitalist is typically solicited to fund high-risk ventures, such as the commercialization of early-stage intellectual property.