The paper "Financial Issues in New Venture Creation - Sourcing Capital" is a great example of a finance and accounting coursework. Sourcing capital for a new venture can be a simple or complex process depending on where an entrepreneur seeks to get the capital from. Self-funding is an almost straightforward process, while debt-financing (among other external sources of capital) can be fraught with complexities. This paper will discuss the different forms of capital sources and will identify the pros and cons of each funding source. The paper also provides examples of entrepreneurs who have used different funding sources to start businesses.
Subsequent parts of the paper will identify considerations that entrepreneurs make when sourcing capital (e. g. by choosing a type of funding that will raise the amount of capital required). The paper will also identify stages of funding, investors’ choices, needs and what they can provide, and the various forms of capital. The paper concludes by noting that the decision to obtain capital from a specific source affects factors such as profitability, decision-making and governance, and the responsibilities the business has towards different stakeholders.
The paper recommends that entrepreneurs should be more willing to engage in a creative search for capital, weigh the options and possibilities, and pick the option that provides the business with optimal advantages. Forms of funding sources for capital Generally, there are two types of funding sources for capital: Equity financing, and debt financing (Frederick, O’ Connor & Kuratko 2013). Equity financing Equity financing is capital obtained from the business owner and other investors willing to be enjoined in the profit-making, risk-taking, and possibly the loss-making processes of the business (Confederation College 2002).
Frederick et al. (2013) observe that equity financing also involves an entrepreneur selling part of his ownership to other investors. The advantage of equity financing relates to improved corporate image, enhanced corporate value, enhanced liquidity and enhanced capital amount (Frederick et al. 2013). In reference to the risk-taking element that investors have to engage within the process of affording equity capital to a business, such capital is also called risk capital (Carter, Macdonald & Cheng 1997).
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