Family Funding vs. Self-Funding. Which is Better for Your Startup?

[shukla7789]

Financing a business venture, and especially a startup, is often a difficult matter. Startup founders look at various options to help them launch an innovative company. Today, we will focus on two solutions: family financing and self-financing. Which of these options is better? Read our article and find out.

Household financing vs. self-financing – index:
How are startups usually funded?
Funding your startup with family and friends
Pros and cons of family financing
Self-financing
How to invest your own money intelligently?
Self-financing vs. family financing. Which is better?
How are startups usually funded?
A person planning to launch a startup can consider several sources of funding. According to the Kauffman Foundation, over 67% of startups rely on their own savings. For 52%, bank loans and credit cards are a austria whatsapp number database of funding. 21% borrow money from family, 12% use support from business acquaintances, and 8% borrow money from close friends. Of course, startups are also funded by angel investors (8%) and venture capitalists (7%).

Funding your startup with family and friends
Financial support from family when starting a new business venture seems like a sensible solution, and the fact that this option is so popular should not come as a surprise. After all, parents want to do their best for their children to succeed in life. This way, you can raise a considerable amount of money. However, before borrowing money from family or friends, such investors should be informed about the risks of the venture right away.

Pros and cons of family financing
Financing your startup with family and friends has both advantages and disadvantages. Therefore, it is necessary to analyze both and then check which prevails. This depends on the situation of the business founder, as well as the financial situation of his family, the industry and the idea. On the one hand, it is undoubtedly easy to get money. Often, it is enough to present your business concept without any calculations or analyses. The family does not check the business potential or solvency of the young entrepreneur and does not require collateral, which is often the case with a bank.

On the other hand, if you don't pay back the money they lent you, it can put a lot of strain on personal relationships. Therefore, you should do everything you can to avoid losing your family's money. This means that you should be extremely sensitive to market signals that the venture may fail, and then the only solution is to quickly withdraw from the business project.

Self-financing
An alternative to financing your startup with family and friends is self-funding. This is the most satisfying and comfortable option. 67% of entrepreneurs finance their startups this way at the beginning. This step gives you more freedom, but it also makes it easier to find more investors in the future. If they see that you have risked your own money, they are also more likely to take the risk and invest in your startup.

self-financing
How to invest your own money intelligently?
Self-funding your startup is often a good decision, but it needs to be done wisely. To start, it’s best to separate your business money from your personal money, which requires opening a separate bank account for your startup. Personal money can be used to fund your business in a variety of ways. In the US, one option might be what’s called a rollover startup fund (ROBS), where you can use your retirement savings to start a business. But the easiest way is to use your savings, including those held in a savings account or investment portfolio.

Self-financing vs. family financing. Which is better?
Which option is better? Self-financing or family financing? The first option certainly offers more freedom, as you are risking your own money. It would certainly be wiser to forgo family financing if it meant using someone else’s savings that have been accumulated over the years. On the other hand, family money may be a more favorable option than an expensive loan from a bank.