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5 reasons why you should seek outside funding for your start-up.

While it’s often argued that you should probably bootstrap and not look for any loans when starting out your own business, it shouldn’t always be so. Outside funding, especially from banks and venture capital firms, can help you get your start-up off the ground in many ways. Here are five reasons why you should seek outside funding for your business.

1. Cash. When starting out, you simply need cash, and in many cases, that cash isn’t available from savings, friends, and family members.

2. Brand. The fact that a company has been funded by a well-respected fund/partner alone can increase a company’s odds of success, because that brand makes it easier for the company to attract talented employees and later stage investors. By definition, startups have no brand at launch.

3. Industry network. Funders and venture capitalists will typically introduce you to 3-10 people in their
network who can help.

4. Funding network. Later-stage VCs and funders pay careful attention to the earlier funders in a company, using the reputations of the funders as a proxy for their own diligence. The next-best asset to a large pool of capital is the ability to easily help raise more capital in later rounds from past partners.

5. In-house expertise. VCs can provide consulting, accounting, or operational resources, both directly from their own staff and from preferred service providers.

All of the resources above are synergistic, i.e. more success creates more cash, which strengthens the brand, which increases the industry and VC network, which strengthens the in-house expertise. This is one of the key reasons that venture capital, and in some cases funding from banks and SACCOS, beats funding from savings, friends, and relatives.

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