At different stages of startup implementation business angels, venture capitalists and are concerned as the main traditional sources of financing for such projects. At the same time, entrepreneurs have more options of raising money through crowdfunding, an innovative method of online fundraising from a large number of investors. It is defined as popular method of financement. The three mentioned methods are appropriate for the Teaching Penny Stocks project. Before applying one of these financement models on practive, it is nessecary to define their advantages and disadvantages.
It should be noted that getting access to capital is no longer crucial problem for entrepreneurs. The main thing is to understand the influence of using each funding source and take into account time and cost needed for signing the deal, the added value for each side, the level of business control allocating in order to better find right financing strategy at a certain stage of company's development. Business angels and venture capitalists preferably invest in technical or IT startups such as Teaching Penny Stocks. Crowdfunding has 2 common platforms that serve many areas, and highly specialized platform for investing in certain industries. So it makes financing available to a broader spectrum of entrepreneurs. Especially, the system of crowd funding model is applicable to the initiatives with positive social outcomes. The social impact of the online teaching program is evident, that is why this startup is expected to be supported by a number of investors.
Business angels usually invest their capital at the early stages of company's development. Therefore, this financing is more suitable for entrepreneurs who have just set up a company and need to convert their ideas into projects. Venture capitalists prefer to finance the business at the expansion stage, although sometimes they can also invest their capital at an early stage of development of the company, rarely at the initial stage. Joint crowd funding investment model provides capital to companies during their startup and early development stages. Average joint investments provided by crowdfunding platforms do not exceed $ 1 million. Therefore, at current stage of development Teaching Penny Stocks should rather apply crowdfunding model or involvement of business angels. The venture capital may be attracted after some time for further development of the project. Moreover, venture capitalists usually require high percentage of shares such as 60-70%. In case they become members of the Board of Directors, greater percentage is required.
It should be noted that the recommended methods of financement also have the impact on the allocation of profits and control. Business angels are willing to part with their capital for a quite small share of business, that the Teaching Penny Stocks is ready to provide. In crowdfunding, the stock price is lowered by involvement of large number of investors, thus, entrepreneurs have more rights to manage their business using this financing method. At the same time, the choice of funding model depends on several interrelated factors. Thoroughly calculated business plan is likely to increase the amount of money invested in the project. For the online teaching project the popularity is expected to be high, therefore this fact should be presented to the target investors.
If the company decides to use the method of crowdfunding, it is nessecary to identify the amount of investments needed for the project implementation because of the fact that the time for raising money is limited. In case the collected sum of financement is lower than the one initially stated at the beginning of the growdfunding campaign, money is likely to be returned to the investors by the crowdfunding platform. It was already mentioned that the promotion of online teaching startup requires quite limited investements for its initial implementation That is why crowdfunding model remains appropriate despite its particular shortcomings.
Moreover, crowdfunding gives the startup access to funding without requiring to provide numerous sponsors with the control over the company. Instead, the company may offer the product as a perk. Thus, the followers will receive it before the official release on the market, and it's a very good way to attract new customers and prove the viability of the concept. In addition, due to the fact that crowdfunding campaign is public, it will be easier to attract the attention of the media to the project. The information about new brand will spread further and further, people will leave comment on it. Thus, it will be easier to define the target customers analyzing the demand. At the same time, the online teaching project needs additional supervision in order to achieve the further growth. In this context, the potential disadvantage of crowdfunding model in contrast to angel investing is the lack of valuable guidance and mentorship that business angels usually provide to the project. It should also be noticed that the company will need to assess the company in order to determine the price of the stock. For many aspiring startups it is quite a difficult task and the online teaching startup is not exception. That is why additional sources should be applied.
One of the most effective methods of finding investors for the project is networking that refers to participation in industry forums and conferences, competitions for startups and venture capital investment, which involved a large number of companies, seeking to get financement and potential investors.
Conclusion
As the result of this research, it is clear that crowdfunding is perfect way of financement for startups in the early stages. That is why for Teaching Penny Stocks, as quite simple project requiring small financing, crowdfunding platform is the ideal place to start promoting the company. Other sources of financement such as venture capitalists and business angels may be applied at the further stages of startup's development. Emphasizing on the initial idea of this essay, it is important to remember that the decision on a particular method of financing is quite difficult. Each of these options brings good and bad effects, which vary depending on the starting data of Teaching Penny Stocks.
References
Lee, J. (2014). Crowdfunding. New York: Public Press.
Lerner, P. (2016). How to finance your sturtup. London: LPP.
