OK. So you have a great idea for a company and you decide to start looking for a way to finance your start-up. What now? Well you have to begin by asking yourself some very crucial questions first.
1. What will the valuation of the company be once you start operating? It all depends on many things, but generally you divide your initial start-up and operating costs between all or some of your co-founders. Say you have a company that will have an initial valuation of $100,000 then you would divide that in 6 equal parts or any agreed combination of percentages which usually go for $1,000 per percent. If I would want a 10% stake in your company, I would need to dish out $10,000.
2. How much money do you need to start and continue operating for, at least, two years even if your not generating profit from your company? Normally, this is where you begin searching for a Bank that can give you a Small Business Loan. For this you will probably need financial statements from all your Co-Founders, so choose your partners wisely and make sure that you are effectively partnering and not just accepting partners because they have cash. Check out Steven K. Scott's story on how he effectively partnered to create one of the fastest growing companies today!
3. To be continued...