Answer to Question #6993 in Economics of Enterprise for LaMarcus Streeter

Question #6993
Create an idea for a startup venture and discuss the most viable way to raise the working capital to get the startup running. Explain your rationale.
Expert's answer
Our idea for start-up venture is to open small souvenirs shop. To realize this idea I need first to analyze the possible sources to get start-up capital and to choose the best variant in my case. So we took into consideration the following sources of raising business capital:

1. Personal savings

2. Gifts or 'private loans' usually from family & friends

3. Redundancy settlements

4. Sales of assets - houses, shares etc

5. Bank loans, credit cards and overdrafts which carry repayable interest charges on top of capital repayment

6. Enterprise grants (which do not usually need to be repaid but carry qualifying criteria)

7. Venture Capital (money invested in exchange for equity in business)

8. Business Angels (money invested in exchange for smaller amount of equity in business)

And we came up with the conclusion that we can put 15 % of our own savings and 35 % as a 'private loans' from the members of the family. So we would have 50 % of start-up capital from personal and family sources. We do not have any personal assets to sale and we understand that if we don't have any assets on which to secure a loan such as property, we may well find it difficult to borrow money from traditional sources like banks. So the other 50 % of needed capital we plan to raise from so called Business Angels (as Venture Capitalists are looking for the highest possible return that they can make and Business Angels are more likely to invest in small businesses). As well we have an option to apply for the grant as we want to make our souvenirs shop a kind of social enterprise where the souvenirs partly will be made from home by the handicapped people that would like to have work.

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