What are the primary sources of funding for entrepreneurs?

Hello There!

The source of funding for entrepreneurs changes with each phase in the development of their startup. These phases could be identified as the ideas phase, followed by the planning phase, then the proof of concept phase, then the launch phase, the beachhead phase, the growth phase and the establishment phase.

Understand so far? I Will explain each phase for you and hopefully you will have what you're looking for, 
Ideas phase: This is a low funding demand phase. Money is mostly needed to pay friends and acquaintances to have a coffee or a meal while you discuss some solutions you think might solve some problems you have identified. Maybe some travel is involved, but whatever the expenses are in the ideas phase, the funding is all sourced from the entrepreneur themselves, and mostly from their day job.

Planning phase: Funding at this stage is required to attend seminars or business startup courses or maybe purchase some planning software to help develop a business model which needs to be tested and changed based on the market feedback. Many innovative and new-business promoting governments will provide funding in this phase with grants and free access to this advice. The ‘bootstrapping’ entrepreneur will still need to fund any shortfall in this phase which is predominately their living costs as they pursue their dreams. The entrepreneur’s personal credit cards or savings become a major source of funding in this phase.Proof of concept phase: This is the phase where the 3F’s of startup finance typically kick in. (i.e. Friends, Family, Fools). Funding in this phase is required to prove that the proposed startup’s offer provides a compelling solution to a proven market need, experienced by a sufficient number of people capable and willing to buy it. Many costly market trials will need to be conducted during this phase, both off-line and on-line.

Launch phase: The sheer amount of costs associated with the launch phase will typically send the entrepreneur is search of external funding. Most entrepreneurs attract their finance contributing partner at this stage or if they are able to, they may take out a second mortgage from the bank on their home which may give the entrepreneur the necessary cash to launch the business an so not need external funders. This is also the phase where crowdfunding can play a big part in securing the necessary finance, provided the entrepreneur can tell a compelling story that resonates with enough people. Angel investors would also be interested in investing at this phase and can be a valuable source of necessary early stage finance for the entrepreneur. Banks, via their associated finance companies, often provide leasing finance at this stage for new equipment/vehicles provided the projected profit and cashflow forecasts meet their requirements. Some venture capitalists are attracted at this point, but their engagement in this phase, is rare.

Beachhead phase: The beachhead stage required the startup to gain traction in the market which often means a combination of promotional costs coupled with product discounts which all adds up to trading losses that are made more real by the low sales volumes. These trading losses need to be funded somehow, and hopefully this was anticipated in the launch phase funding so that the money raised from angel investors or finance contributing partner also include a working capital amount to cover these loses. New funding in this phase is more likely to come from supplier credit which helps fund the startup until it achieves break-even. Customer deposits and pre-payments may also form a part of the startups funding plans in this phase.

Growth phase: By this phase the startup is profitable, and so the startup’s profits become a source of finance that can help fund the growth of the business. The maturity and profitability of the business makes the startup more attracted to bank finance in the form of overdrafts and invoice financing. Venture capitalists are also more attracted to the startup in this phase and look to take an equity position in the startup’s future success. Merchant banks may also be interested in providing mezzanine or bridging finance at this point, especially if the startup has plans to work towards an Initial Public Float (IPO).

Establishment phase: At this point the startup has morphed into an established bankable business, which is why the banks are keen to offer term loans to help in the further establishment of the business in the marketplace. It is also the time that the startup looks to fund it’s growth plans via an Initial Public Offer (IPO).

I Hope i have provided a good answer for you
Have a fantastic night!

True i took the test already