GUIDE: INNOVATION-LED > PART FOUR
Innovation-Led Funding Sources
According to Paul Kedrosky of the Kauffman Foundation, more than half of young companies finance startups from their own savings, and then generate enough cash flow to run the company. The second biggest source of funding is credit cards, the third is friends and families.
Some young companies are able to tap into conventional bank loans, if they have the collateral to secure the loan. Kansas City offers a wide range of loan programs targeted to startups. And if you are working on the next big technological breakthrough, you might be able to tap into government technology grants.
Less than 20% of fast-growing companies get venture capital funding, according the Kauffman Foundation research. That leaves a funding gap that is increasingly being filled by angel and peer-to-peer investors. Seeking funding from individuals outside your circle of friends requires preparation. Specifically, you’ll need to:
- Develop your business plan
- Develop a deal sheet (Compliments of David Cummings, Founder and Chair of TradeBots)
- Figure out your valuation
- Develop your pitch
It’s HIGHLY RECOMMENDED to go through a trusted resource, such as the Small Business and Technology Development Center at UMKC or the Enterprise Center of Johnson County on the Kansas side, when approaching angel investors or venture capital firms. These resources can assist you in preparing your best business case before pitching to potential funders. You may also find Funding Stage Definitions helpful in determining what types of investors to approach.