What Are Funding Types?
To ensure that your project is funded, you must be prepared to explain what type of funding you want. This can come in the form of private equity, loans or grants. The type of funding that you choose has a large impact on how much money your project will receive in total. This blog post provides an overview of the various types of funding and some links to relevant sites where you can learn more about them.
What are Funding Types?
Let’s break funding down into the following categories:
- Private Equity (PE)
- Venture Capital (VC)
- Public Market Equity (PME)
- Grants and Donations
These are not comprehensive lists of funding types but they are a great place to start if you want to learn more about the types of funding that can help your project get funded quickly and efficiently. You can also use the links provided here to research each type further. One of the first things you will notice when you explore the different types of funding is that different types of companies lend money at different stages in development. You will also notice that this ties into how companies view the success of your project and what they are willing to invest in.
Private Equity (PE) is a form of financial investment where a company purchases an ownership stake in your company with the hope that they will be able to sell their shares at a much higher price when your business is successful. This type of funding is available to companies who are at the early stages of development where your business has yet to be proven successful by gaining market share.
Venture Capital (VC) is a form of financial investment where a company invests money in your business with the hope that when your business is successful, it will be able to sell its shares at a much higher price. Venture Capitalists (VCs) only invest in companies that have already shown that your product or service has market acceptance and is on its way towards success.
Public Market Equity
Public Market Equity (PME) is a form of financial investment where a company invests money in your business with the hope that when your business is successful, it will be able to sell its shares at a much higher price. The term public market equity or public market refers to when shares are traded on a stock exchange, like NASDAQ. For PME investors to recoup their investment they must sell the shares before they expire and liquidate those shares. There are two major forms of PME financing, direct and angel.
Direct investors do not take an active role in the running of the company. They simply want to provide financial backing for your business so that you can further develop your product or service so that it will be more profitable. Direct investors tend to be more interested in investing in a larger amount of capital than angel investors but they also charge higher fees and interest rates.
Angels are also called high net worth or accredited investors. When you reach out to an angel investor they will require a lot of information about your project before they decide to invest in your business. They usually invest in startups through a convertible note or SAFE that allows them to hold shares of stock in your company until you have grown profitable enough to raise more capital from the public via an IPO. Angels believe that startups which take the time to build a good product or service are capable of achieving great success and will often invest their money in projects that have high growth potential.
Grants and Donations
Unlike the other three types of funding, grants or donations are not investments. Grants and donations are usually given by government agencies or private organizations to help entrepreneurs expand their projects in ways that they could not afford on their own. Getting this type of funding requires a lot of time and effort as you will need to write grant proposals to persuade potential funders that you have a project which will benefit the public. It can also be difficult to get grants or donations as they are usually given out on a very limited basis and are often not funded by the government.
The type of funding that you choose has a large impact on how much money your project will receive in total but it’s important to realize that you don’t have to choose one funding type over the other. The correct funding type depends on the stage of your project and what your goals are for expanding it. For example, if you’re looking to build a prototype but have no way of demonstrating it in front of investors then private equity investors might be the best option for you as these types of funds tend to be interested in companies at an early stage when success is still uncertain. On the other hand, if you want to take your business to the public market then a venture capitalist investment would be more appropriate as they are only interested in projects that have already shown signs of growth.
Choose wisely which type of funding you use based on how much capital you need and where your project is in its development cycle. Even though you may need to spend time and effort to get the funding you need, remember that it is a necessity for most startups. With the right type of funding, you will be able to take your initial idea and expand it into a successful project.