Invent

Business Capital


Developing a Strategy for Capital

By Mark Alford

Capital is among the top concerns for the vast majority of owners of small businesses and startup companies. There are five fundamental forms and sources of capital: venture capital, equity capital, working capital, debt capital, and angel capital. When asked the question of which type of capital is best for your business, the simplest answer is whichever type best allows you to generate income. The specific industry you’re in as well as your particular business model have a strong influence on the type of capital you should pursue for building your business. The protocol you establish for the use of your revenue is another important factor that you will want to carefully consider. In terms of your business’ worth, capital is the amount of its assets that surpass its debts or liabilities. While some businesses choose to pay out their revenue earnings, other businesses opt to fund their companies based on positive cash flow, reinvesting a percentage of their earnings back into the company.

Venture Capital

Companies in their early stages, possess significant potential, characterized by high risk, and growth startup companies tend to benefit the most from financial capital provided through venture capital (VC). This is a form of private equity that earns a return through ownership of equity in a company. Likewise, those looking to fund their business can solicit funding from venture capitalists to help them get their business off the ground and catalyze explosive growth.

Equity Capital

Owners of brand-new businesses often opt for equity capital as a means of catapulting their businesses forward. Business owners generate equity capital by selling equity that they have built up in their company. This can be accomplished by selling stocks directly to the public or with the assistance of an investment firm.

Working Capital

Working capital (WC) is the measurement of a company’s liquid assets that are available for immediate use. This is also referred to as operating capital. The valuation of companies is often done through the calculation of their net working capital (assets that exceed liabilities; discounted cash flow). Companies should always closely monitor their working capital as this will help them determine their potential funding and reinvesting opportunities for growth initiatives.

Debt Capital

Businesses can generate debt capital by requesting a loan. This can be accomplished through a secured loan through a financial institution for a fixed amount or through an unsecured loan such as a credit card. In either case, a benefit of this form of capital is that the business owner maintains full ownership of their company since the creditor is paid for their loan via fixed annual percentage rates; not stocks.

Angel Capital

Others companies have been able to start and grow their businesses with angel capital. Angel investors typically come in the form of wealthy individuals who invest via their own personal finances or through angel groups or networks that pool their assets. Angel investors earn a return on the angel capital they provide businesses through convertible debt or ownership of equity in the company.

Capitalize on Your Opportunities

There are a variety of opportunities for capital and it’s critically important to carefully weigh all of your options in order to achieve optimal health for your company.

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