Private funding and bank loans The initial financing necessary for starting up a business All start-ups need funding to launch their activities and undertake necessary investments before they start having revenues. Private financing – from the company founders themselves or other private investors – is the most important source of funding. The start-up financing cycle includes several phases and different types of investors. The first development stage is often financially challenging for innovative start-ups, which in many cases need a rather long process of developing new products and concepts and can require considerable investment in research and development activities, prototyping, etc. Private funding Being an entrepreneur means taking risks: it is often the entrepreneur’s personal resources that constitute the first source of private equity. Other private funding possibilities could come from friends and family, crowdfunding (i.e. collecting contributions from many investors – the crowd – via an internet platform), business angels or venture capitalists. Business angels In general, business angels have solid experience in a certain type of business. In addition to injecting capital into companies, they also contribute with their knowledge and experience. They generally invest in start-ups at an earlier development stage than venture capital funds. The Luxembourg Business Angel Network (LBAN) brings together business angels and private investors and connects them with entrepreneurs. Venture capital Companies specialising in high-risk/high-return investments may offer very significant financing. Venture capital funds perform their business project selection based on multiple rigorous criteria, and are often geared towards innovative projects that carry hopes of very substantial returns. Bank loans Many innovative companies make use of bank loans to finance their business, from the purchase of fixed assets to the partial financing of working capital. Unlike an investment, a bank loan does not entail a shareholding in the business. An adequate level of equity capital is, however, necessary when applying for a bank loan.
