Glossary – Funding

Definition

Funding is the provision of capital. For startups, it’s the provision of capital that allows you to realize your business plan. To cover the whole funding of your idea you will most likely need several financing sources. In general those sources are divided into equity- and external capital.

Traditionally equity capital is what funds you and the other entrepreneurs invest into the company. Depending on the concept, equity can also be funds that you acquired through selling shares of the business. Later when the company is up and running those funds, provided you keep the profit inside the company, will increase your capital further. In short: Equity capital is defined by being at the company’s disposal for an extended period of time, without being in immediate need of paying it back. Furthermore, it’s the first asset that is liable in case of a problem. Contrary to that is the external capital, which is a classic bank loan. You are aware, that this involves a strict plan for repayment. If problems arise, your own funds are the first to be liable.

The importance of the optimal financing mix are outlined in the following chapter.