Got a great idea for a start-up? Put your thinking cap on and head towards the garage!
To get any venture off the ground, you need money. Initially, most startups afford their shoe-string budget on the generosity of their family and friends. Often, the founders sponsor their ideas themselves.
As the enterprise matures, it attracts investors. Wealthy individuals and institutions gauge the success probability of the venture and decide if it’s worth funding.
Over time, the enterprise becomes profitable, gains a customer base, and explores other more lucrative avenues such as mergers, IPOs, etc.
Thanks to the attractive business model that comes with investing in brilliant ideas, there exists an established practice when pouring capital into nascent startups.
When an organization is built by an entrepreneur with nothing but personal savings, it is called Bootstrapping.
In the early 19th century, “pulling up one’s own bootstraps” was an expression. It was used to describe what was an impossible feat. Bootstrapping originated from this expression and is used to denote success that was achieved with little to no assistance.
As is self-evident, bootstrapping is not for the fainthearted. The complete financial onus falls on the founder.
If the resources are limited, it could compromise the integrity and quality of the service or product being offered. It could also hamper promotion and stifle growth.
On the plus side, the owner has total control over the business and its decision-making processes. Furthermore, precious time is not wasted trying to fend for investment and pitching to potential lenders.
With Bootstrapping, you are unlikely to experience profit early on. By and large, entrepreneurs bring in revenue in a gradual manner and create assets. These assets are then re-invested into the business to fuel its growth.
Investors recover their investments in myriad ways.
For example, Venture Capitalists (VCs) make money in one of the 2 following ways.
The management company that runs the VC fund is paid an annual management fee. It is used to cover fund and organizational expenses. It is also paid as a form of salary.
The fees are calculated as a percentage of the fund capital commitments. Typically, that ranges anywhere between 2 to 2.5 percent.
Carry refers to the share of the profits resulting from a successful investment. For Venture Capitalists, that is usually anywhere between 20 to 25 percent.
Angel investors make money the same way that Venture Capitalists do with one important distinction. There are no middlemen or intermediaries involved who have to be employed to manage the portfolio.
No financial intermediaries, money managers, or brokers are involved. This saves up to 1 to 2 percent in fees and investment commissions.
At mPokket, we understand the importance of financial literacy, especially among the youth of our country. It is our endeavor to empower our youngsters by enabling them to become financially independent at a very young age.
By offering an instant personal loan of small to medium ticket size to college-goers and young professionals for a limited duration, we encourage them to plan their expenses from a very early age, setting them up for lifelong success.
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