# Funding Options Guide

## Disclaimer

This guide is for **educational purposes only** and does not constitute financial, legal, or investment advice. The information provided is general in nature and may not apply to your specific situation. Always consult a qualified financial advisor, attorney, or accountant before making funding decisions. No guarantees are made regarding the accuracy or completeness of this content.

(Source: funding-options-guide.md)

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## Decision Tree Overview

The funding decision tree helps founders evaluate options based on three primary inputs:

1. **Business Stage** - Where you are in the company lifecycle (idea, pre-revenue, revenue-generating, scaling)
2. **Capital Need** - How much funding you require and over what timeframe
3. **Equity Preference** - Your willingness to give up ownership in exchange for capital

### How the Decision Tree Works

Given your inputs, the decision tree produces a **ranked shortlist** of funding options ordered by suitability. Each recommendation includes a **rationale** explaining why that option may be suitable for your situation based on the inputs provided.

The tree evaluates each funding type against your inputs and assigns a suitability score. Options that conflict with your preferences (e.g., venture capital when equity preference is "retain full ownership") are ranked lower or excluded.

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## Bootstrapping

### Overview

Bootstrapping means funding your business using personal savings, revenue, or sweat equity without external investors.

### Benefits

- Full ownership retention - no dilution of equity
- Complete decision-making autonomy
- No investor reporting obligations
- Forced discipline on spending and prioritization

### Drawbacks

- Growth may be slower due to limited capital
- Personal financial risk if using savings
- May miss market timing windows
- Difficult for capital-intensive businesses

### When Bootstrapping May Be Suitable

Consider bootstrapping when your capital need is low, your business stage is early (idea or pre-revenue), and your equity preference is to retain full ownership. It works well for service businesses, SaaS with low initial costs, and consulting firms.

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## Grants

### Overview

Grants are non-dilutive funding provided by governments, foundations, or organizations for specific purposes.

### Benefits

- No equity dilution - you keep full ownership
- No repayment required (unlike loans)
- Can validate your business idea through competitive selection
- Some grants provide mentorship and networking

### Drawbacks

- Highly competitive application process
- Often restricted to specific uses or sectors
- Long application timelines (weeks to months)
- Reporting and compliance requirements

### Eligibility Signals

Not all businesses qualify for grants. Key eligibility factors include:

- **Sector**: Technology, clean energy, healthcare, agriculture, and social impact sectors have the most grant availability
- **Geography**: Many grants are region-specific (state, country, or municipality)
- **Demographics**: Programs exist for underrepresented founders (women, minorities, veterans)
- **Stage**: Some grants target early-stage research; others target commercialization

To qualify, you typically need to demonstrate alignment with the grant's mission and meet specific criteria around sector focus, geographic location, or founder demographics.

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## Angel Investment

### Overview

Angel investors are high-net-worth individuals who invest personal capital in early-stage companies in exchange for equity.

### Key Considerations

- **Dilution**: Angels typically take 10-25% equity. Understand the dilution impact on your ownership and future fundraising rounds. Multiple angel rounds compound dilution significantly.

- **Governance**: Angels may request board seats, advisory roles, or governance rights. Some angels take a hands-off approach, while others expect active involvement and control over key decisions. Negotiate board composition and voting rights carefully.

- **Timeline**: The angel investment process typically takes 4-12 weeks from introduction to closing, though it can vary. Allow sufficient time for due diligence, term sheet negotiation, and legal documentation.

- **Professional Referral**: Before accepting angel investment, consider consulting a financial advisor or attorney experienced in early-stage fundraising. Legal counsel is essential for reviewing term sheets, understanding dilution mechanics, and protecting founder rights.

### When Angel Investment May Be Suitable

Consider angel investment when your business stage is pre-revenue or early revenue, your capital need is moderate ($25K-$500K), and you are willing to exchange some equity for capital and mentorship.

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## Venture Capital

### Overview

Venture capital (VC) firms invest institutional money in high-growth companies in exchange for significant equity positions.

### Key Considerations

- **Dilution**: VC rounds typically involve 15-30% dilution per round. Series A, B, and C rounds compound this effect. Founders may retain less than 20% after multiple rounds. Understand fully how dilution affects your long-term ownership.

- **Board and Control**: VCs almost always require board seats and governance rights. This means shared control over major decisions including hiring executives, pivoting strategy, and exit timing. Board composition changes with each round, and founders can lose majority control.

- **Timeline**: The VC fundraising process typically takes 3-6 months from first meeting to close. Budget adequate time for initial meetings, partner meetings, due diligence, term sheet negotiation, and legal closing.

- **Professional Referral**: Engaging a financial advisor and/or attorney experienced in venture financing is strongly recommended before entering VC negotiations. An experienced attorney can help negotiate protective provisions, anti-dilution clauses, and liquidation preferences.

### When Venture Capital May Be Suitable

Consider venture capital when your business stage is revenue-generating or scaling, your capital need is large ($1M+), and you are willing to accept significant equity dilution in exchange for rapid growth capital and strategic support.

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## Debt and Loans

### Overview

Debt financing includes traditional bank loans, SBA loans, lines of credit, revenue-based financing, and other forms of borrowed capital that must be repaid with interest.

### Benefits

- No equity dilution - retain full ownership
- Predictable repayment schedule
- Interest payments may be tax-deductible
- Builds business credit history

### Drawbacks

- Requires repayment regardless of business performance
- May require personal guarantees or collateral
- Interest costs reduce profitability
- Can limit future borrowing capacity

### Types of Debt Financing

| Type | Typical Amount | Term | Best For |
|------|---------------|------|----------|
| SBA Loans | $50K-$5M | 5-25 years | Established businesses |
| Bank Lines of Credit | $10K-$500K | Revolving | Working capital |
| Revenue-Based Financing | $50K-$3M | 1-5 years | SaaS/recurring revenue |
| Equipment Financing | Varies | 3-7 years | Capital equipment |

### When Debt May Be Suitable

Consider loans or debt financing when you have predictable revenue, want to retain full ownership, and can service regular repayments.

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## Boundary and Ambiguous Results

### When Inputs Produce No Clear Winner

Sometimes your decision tree inputs produce **ambiguous** or **conflicting** results. This happens when:

- Your equity preference contradicts your capital need (e.g., "retain full ownership" but need $2M+)
- Your business stage fits multiple funding types equally well
- Conflicting priorities make trade-offs unclear (e.g., speed vs. ownership retention)

When preferences are **contradictory**, the decision tree may surface multiple options with similar suitability scores and no clear best choice.

### Comparison Table

Use this comparison table to evaluate funding options across key dimensions:

| Funding Type | Capital/Funding Amount | Timeline/Speed | Equity/Ownership/Dilution | Suitability Rating |
|---|---|---|---|---|
| Bootstrapping | Low ($0-$100K) | Immediate | No dilution | High for early-stage, low capital need |
| Grants | Low-Medium ($10K-$1M) | Slow (months) | No dilution | Medium - depends on eligibility |
| Angel Investment | Medium ($25K-$500K) | Moderate (weeks) | 10-25% dilution | High for pre-revenue with mentorship need |
| Venture Capital | High ($1M+) | Slow (months) | 15-30%+ dilution | High for scaling, growth-stage |
| Debt/Loans | Medium ($50K-$5M) | Moderate | No dilution | High for revenue-generating businesses |

### Resolving Ambiguous Results

When the decision tree produces conflicting or unclear results:

1. **Reconsider your inputs** - Revisit and refine your business stage assessment, capital need estimate, and equity preference. Small adjustments can clarify the ranking.
2. **Adjust priorities** - Determine which input matters most to you and weight it more heavily.
3. **Combine options** - Some founders use a blended approach (e.g., grants + bootstrapping, or angel + debt).
4. **Seek external perspective** - When inputs genuinely conflict, an advisor can help clarify trade-offs.

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## Output Template

After completing the decision tree, document your results using the funding strategy template.

**Output file**: Use the template in `funding-strategy.md` to capture your ranked shortlist, rationale for each option, and next steps.

**Source reference**: This guide (`funding-options-guide.md`) provides the framework and criteria used to generate your funding strategy output.

### Suggested Output Format

```
Ranked Shortlist:
1. [Funding Type] - Suitability: [Rating] - Rationale: [Why this option fits]
2. [Funding Type] - Suitability: [Rating] - Rationale: [Why this option fits]
3. [Funding Type] - Suitability: [Rating] - Rationale: [Why this option fits]
```

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## Disclaimer

This guide is for **educational purposes only**. The funding options, decision criteria, and recommendations presented here are general in nature and may not be suitable for every business or situation. This content does not constitute financial, legal, or investment advice.

Always consult qualified professionals — including a financial advisor, attorney, and/or accountant — before making funding decisions. The authors and maintainers of this guide accept no liability for decisions made based on this content.

Nothing in this guide should be interpreted as a recommendation to pursue any specific funding path. Language such as "consider" and "may be suitable" reflects educational guidance, not directives.
