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Unorthodox Startup Capital: Retiring on Your Business
Starting a business is tough, especially if you have a 'day job'. You need to balance the efforts of two worlds, and you often use the income from one to finance the other endeavor – the one that really interests you. Acquiring the capital to start your business operations on a full-time basis is one of the most daunting challenges you will face. Funding your business yourself tends to be the best option. You’re probably thinking, if you had the funds, you would not need to read this white paper! You may have access to some capital without realizing it. If you have not tapped your retirement account yet, please read this white paper first. You can use your IRA, 401(k), or other ERISA-compliant retirement account to fund your business without incurring the draconian penalties associated with early withdrawals. Essentially, you can turn your retirement account into your own private equity fund. It’s just a different kind of retirement investment – one that can give your business the jumpstart it needs. Starting a business is tough, especially if you have a “day job”. You need to balance the efforts of two worlds, and you often use the income from one to finance the other endeavor – the one that really interests you. To keep your business moving forward, you spend your nights and weekends on product development and market research. Vacation days are spent at small business seminars and searching for potential investors. As you begin to find investors and your business gets traction, you have to make that tough choice – do you quit your day job? To make the answer to that question “yes”, it usually means that you have acquired the startup capital that you desperately need. Acquiring the capital to start your business operations on a full-time basis is one of the first and most daunting challenges you will face. Typical avenues include financing from private equity funds, venture capital funds, and institutions (such as banks). Each of these audiences is demanding; they want to ensure that the money they invest in your idea will generate returns commensurate with the risk you are asking them to assume. Garnering the attention of potential investors (especially venture capital firms, private equity investors, and angel investors) is not easy. Venture capital firms and private equity funds screen countless proposals and business plans every day.1 Angels and private equity funds tend not to advertise, and heavy networking is really the only way to find them and get a meeting. If you successfully pitch these investors, the terms they offer tend toward the severe. You will have to accept high interest rates for loans or surrender control of your business (as well as equity) to investors. Funding your business yourself tends to be the best option. This seems obvious. In fact, you probably are thinking, if you had the funds, you would not need to read this white paper! You may have access to some capital without realizing it. If you have not tapped your retirement account yet, please read this white paper first. You can use your IRA, 401(k), or other ERISA2-compliant retirement account to fund your business without incurring the draconian penalties associated with early withdrawals. Essentially, you can turn your retirement account into your own private equity fund. With proper planning, you can use your retirement account to buy closely held stock in your new business, instead of investing your retirement funds in publicly traded stock or mutual funds. It’s just a different kind of investment. The Challenge of Capital Acquisition As mentioned above, there are a myriad of traditional routes for financing new businesses. Venture capital firms, private equity funds, angel investors, and banks have financial instruments that small businesses can use to fund their operations. Many small businesses do not have access to funds from these traditional venues for early stage investments. There are limits to the effectiveness of such institutions in starting your business. Deal terms are typically draconian, especially as the risk of your endeavor increases. If your operating history is short, if you are still in product development, or if you have had personal financial problems, you may still be able to get funds from these investment venues – but you will have to pay. Financiers will charge high fees (in excess of 10% of the capital raised) in addition to taking a significant equity position in your company. Without a doubt, you will have to surrender control. [continued...] Want to know more? Download the White Paper "Unorthodox Startup Capital: Retiring on Your Business" for just $89.95. |
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