As an entrepreneur at the beginning of your journey you will most likely rely on your own savings and ‘bootstrap’ (rely solely on existing resources) through the first few years of your startup. You may also gather funding from what are known as the 3Fs (Friends, Family, and Fools). These are less likely to request guarantees and/or collateral5, audited financial statements, or equity in your startup, which you are less likely to be able to provide during the initial phases of your startup. Friends and family, however, are also generally less likely to provide you with the larger amounts of funding you will need at later stages of your growth.
You will, therefore, need to access more formal financing entities such as banks, venture capital and private equity funds, microfinance institutions, and others. They offer financing instruments such as loans, equity, mezzanine financing, and grants to help finance your startup’s growth. Understanding these entities, the funding instruments they provide, and their direct and indirect cost is crucial for you to be able to identify the best possible funding avenue for your startup at each stage and accompanying funding round.