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Minnesota Startups and Venture Capital Alternatives Image

Minnesota Startups and Venture Capital Alternatives

Posted by: David C. Kim

Minnesota entrepreneurs who are looking to start new businesses may be interested to know that industry insiders say seeking venture capital may not be the best way to obtain funding. According to a member of a Southern California venture capital firm, out of the more than 1,000 proposals his company reviews annually it invests in less than a dozen. Entrepreneurs who want venture funding need to create workable business plans beforehand.

According to some data, only around 10 percent of seed funding originates as venture capital, and the majority of such funds are awarded to entrepreneurs who have previous successes under their belts. Several alternative sources account for the vast majority of startup money.

Entrepreneurs commonly use their personal savings and credit to fund their ideas. This accounts for the largest source of capital at around 36 percent, according to one study. Bank loans are a close second at 35 percent, although these institutions may be more apt to fund companies that already possess physical assets. Entrepreneurs can also solicit funds from acquaintances or government sources, such as the Small Business Administration and various grant providers.

Starting a company is an involved process. When seeking funding from outside investors and lenders, entrepreneurs will most likely need to prepare a business plan. The plans will need to contain reasonably detailed pro forma financial projections and describe an exit strategy for an equity investor. An attorney who has experience in advising business start-ups can often be of assistance in the review of such a plan and can provide advice regarding applicable federal and state securities laws and other regulatory compliance.

This information is general in nature and should not be construed as tax or legal advice.