is there any well known funding model


0

hi we are forming a startup to implement a concept .. I got in touch with some funders they are asking about the funding model ... can anyone tell what a funding model should contain or what that should speak about....

Funding

asked Dec 9 '10 at 17:51
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Prasonscala
108 points

3 Answers


5

There are really only three major funding models, listed here from most popular to least popular:

1) Bootstrap. You will use your own money to get started, you won't spend more than you earn, and you will grow slowly and carefully.

2) Equity. You will sell shares in your business to investors to get working capital. You never have to pay it back. The investors hope that the business will be worth a lot someday and their share can be sold to someone else for more than they paid for it.

3) Debt. You will borrow money from a bank or from investors to get working capital. You do have to return the money, with interest, whether or not the business succeeds. This is quite rare because most lenders are extremely conservative about lending money without collateral.

Of course, there are a million variations of each model, but this is what they're asking.

answered Dec 10 '10 at 06:31
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Joel Spolsky
13,472 points
  • BOOTSTRAP Best way to proceed – Frank 9 years ago

1

You have to figure out what funding models apply to your start up and why. How much do you need? Where will it come from? How will you get it? Is there more, but you aren't dipping into it, or is there more that can be had if needed? Are you looking for mostly cashflow-based growth, with some angel funding at the outset, or going full VC to scale hard and fast? Will you "crowdsource" 60% of what you need to get underway? How much bank debt do you plan to have and when?

More than that, investors want a whole financial model. They are almost always wrong, but they still want to see a guesstimate.

answered Dec 10 '10 at 02:05
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Alphadogg
1,383 points

-1

I'm not aware that a funding model is especially important for a startup. Perhaps they're talking about a Business Model?

For good info on Business Models I'd turn to Steve Blank and his book The Four Steps to Ephiphany. It's basically a bible for starting up a good business. Steve also has an excellent blog. Also, check out this very thorough book on Business Model Generation. Depending on your concept, a number of common business models may apply, but this info is about as good as I can get it with no further information.

Funding usually refers to the process of raising money by offering equity in the business. If this is actually what they're talking about, Brad Feld of Tech Stars and The Foundry Group, has an excellent series about startup funding here. You may also want to check out this answer on equity. Also, check out Y Combinators standardized documents for seed funding.

answered Dec 9 '10 at 18:22
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John Sjölander
2,082 points
  • I didn't downvote, but will comment that there is such a thing as "funding model". Basically, it means "how do you think your idea should be funded?" For example, a recent funding model is crowdsourcing your funding. Anyways, if OP doesn't have a business plan, he needs one and your links are great. – Alphadogg 9 years ago
  • Alright, I guess you have a point. I just confuses me that investors want to know about the funding model. I mean – isn't it them? Perhaps I'm missing something. – John Sjölander 9 years ago

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