self-funding

One solution to raising money is to leverage your own personal monetary resources to fund your business.  This is s is a very common way to fund businesses in their earliest forms.  The most frequently used self-funding techniques include using your own personal savings and borrowing using sources of capital available to you including credit cards, lines of credit from other businesses, home equity lines of credit, or borrowing against other assets you may own like real estate.

List of Potential Sources of Self-Funding

We have provided a list below of the potential sources of self-funding that may be available to you.  While this is not a comprehensive list, it should spur ideas.

  • Personal savings
  • Personal credit cards
  • Savings from another business that you own
  • Credit from another business that you own
  • Home Equity Lines of Credit
  • Borrowing against your 401K
  • Borrowing Against Whole-Life Insurance Policy
  • Selling stocks and bonds
  • Borrowing against real estate that you own

Motivation and timing of investor

You are the investor in this case.  Your motives will generally be to create a significant financial reward for your and / or your family.  You should understand that it frequently takes many years to be successful as entrepreneur.

Typical Amount of Funding

The amount funding available using this strategy will totally depend on your personal savings and assets. 

Availability

The availability of this type of funding is easy and immediate.  All you have to do is transfer money from one account to another.

Interest and Principal Payments

Because you are your own financier, you will not need to charge interest or require that principal be repaid.  However, some entrepreneurs do like to make themselves pay

Equity

Generally you will not need to grant equity to any other investor if you are self-funding your business.  You can and should grant equity to yourself in your legal structure.  However, determining the ultimate split of equity will probably be up to you (and any other founders if you founded your company with a group).  We recommend that most entrepreneurs consider establishing an equity incentive program from employees that they hire in order to retain and incent them properly.  Most companies that scale beyond a very small size will need a great team to grow.  Attracting and retaining this team will generally require a smart equity strategy.

Control

Raising money from yourself will not require you to grant control to anybody else, other than those already granted control.  This is one of the primary benefits of self-funding a new venture.

validation / Other

While some forms of funding can communicate validation of your business idea, self-funding will not.  In other words, when you self-fund your business concept you do not receive the additional validation of having an unrelated third-party tell you, or better show you (by investing real money), that they think you have a good idea and a good chance of succeeding.