Essay Example on Entrepreneurship: Creating, Visioning & Innovating

Introduction

Entrepreneurship gets construed as a risk of purchasing a product or a service at a particular price and selling it at another uncertain price (Mitra, 2012). Different entrepreneurs have various ways in which they generate or once generated capital to start their businesses. Some can depict that good entrepreneurship is a process of creation, vision, and change or even innovation that requires energy and passion to implement the generated ideas and solutions. Others might say that their business success path had been challenging as they had no effective ways of generating the required capital. The paper, therefore, is premised on a discussion regarding sources of capital for entrepreneurs, the benefits and challenges the entrepreneurs face through the depicted capital sources, examples of specific entrepreneurs and entrepreneurial firms and how they solved their challenges as well as possible recommendations for the capital sources in the future.

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To effectively finance ventures, entrepreneurs must always depend on various sources of capital. Generally, capital sources are often grouped into external or internal and equity or debt sources that include families, friends, personal funds, and bank loans. Moreover, between the depicted two extreme bank groups that are never willing to participate in venture investment that has many risks and entrepreneurs or their friends and families that highly support the venture, lies other financial sources such as corporate venture capitalists, business angels, and venture capitalists. The general sources of capital for entrepreneurs include:

Debt Financing

Having a debt implies or suggests that a person owes someone money or something more valuable. Entrepreneurs and businesses often rely on loans out or debt instruments like bonds granted to investors. For various small businesses in the United States, debt financing implies that an entrepreneur is taking out some loan type depending on the size of the business, the creditworthiness of a company or its leaders, and the amount required to stabilize the business (Mitra, 2012). For instance, many small businesses start slowly with loans from family members or friends. The action is common but, in some cases, it often complicates the holiday meals of the family or friends if the business is struggling to pick. Also, the small businesses might be started if the owner takes out an equity loan against their homes of cars to use in the business (Bellavitis et al., 2017).

Equity Financing

Equity financing implies that people have the chance to own the organization or take an ownership interest in the organization. For instance, publicly-traded organizations often sell their shares in public marketplaces referred to as stock exchanges. When the organizations engage in the stock exchange, they offer ownership to other investors so that they can raise funds for the organization in a specific equity financing deal. However, not only publicly traded organizations offer stocks to raise funds (Bellavitis et al., 2017). There are also limited liability companies (LLC) or corporations that issue designated number of shares when registering with the state secretary. In most cases, the initial partners or the original business owner owns the stock of the company but they can always grant shares to investors and other entrepreneurs willing to accept the terms and take on the risk. Investors can sometimes be silent partners who merely wait for the company value to increase so that they can share profits, or they can be active partners assisting in building or turning the company around (Mitra, 2012).

Lease Financing

Lease financing is often sued for business automobiles, office equipment, and machinery. It is the same as a loan in that regular payments are often made monthly to a specific contract balance that was agreed upon. However, when the contract ends successfully, the leased item is returned to the leasing partner or party and the involved business must start a new equipment business contract (Bellavitis et al., 2017). Moreover, lease financing is always a good option when an entrepreneur or a business wants to ascertain that they have updated the current machinery and equipment models. Also, it assists in overall cash flow because in most cases, the leasing options are always inexpensive as compared to the borrowing options (Stam et al., 2014).

Venture Capitalists

A venture capitalist can be said to be a professional investor who deploys the funds of third parties into relatively early-stage organizations. A venture capitalist can also be an investor who provides start-up ventures to businesses or organizations with the capital success potentiality or assists other small ventures that do not have sufficient funds to grow so that they can generate high fortunate returns (Stam et al., 2014). Additionally, venture capitalists that are in form of firms are always looking for a stable team of management, a vast and reliable potential market to accept their products, as well as unique service or a product. Also, they often target familiar businesses hoping to get the chance of owning a large industry percentage to allow them to direct the industry (Brown, 2016). In most cases, venture capitalists often spend more time thinking about the decisions they should make as well as the number of ventures they should invest in since it is always their business basis.

Personal Funds, Family, and Friends

Entrepreneurs often depend on various capital sources to finance their venture but in most cases, they rely on personal funds that are inexpensive in control and cost. When they utilize personal funds, they attract other external financial resources like venture capitalists, private investors, and banks (Mitra, 2012). The primary source of personal funds are always mortgages on cars or houses, life insurances, or savings that often guarantee and show the entrepreneur's commitment to the venture. Moreover, families and friends are limited conventional fund sources and their expectation of generating a good return is always set in an informal manner making them be termed as informal investors (Brown, 2016).

Business Angels

Private investors or business angels are individuals who can be rich families and friends or other people who are always looking for various opportunities for investment and use experts and advisors to make their investment choices and decisions (Stam et al., 2014). They also make their capital investments in fresh ventures and are always entrepreneurs who have liquidated their firms and are willing to make huge investments as they are retired high executives of great organizations. In most cases, business angels often share the interests and profits of venture capitalists in equity development. However, some of them often join ventures to get the opportunity to leverage their industry expertise and contacts or hatch the expansion of a potentially successful entrepreneur (Stam et al., 2014). Moreover, most business angels do not compete on deals with venture capitalists as they often invest in the seeding stage of a business hoping to allow the venture to attract future and more capital from the venture capitalists. Or, they can invest in ventures who have a slow growth rate to attract more venture capitalists (Brown, 2016).

Initial Public Offering (IPO)

Initial public offering gets construed as the stock sale to the public made by the equity owners and entrepreneurs by offering to sell a part of the company in the public market through statements of registration with the country's security commission to raise funds or capitals to expand on the public market. IPO has three primary advantages which are generating a new capital of equity, increasing a company's ability to get future funds, and being provided with high liquidity for an enhanced valuation (Mitra, 2012). For instance, as an organization is publicized, it must be involved in public training for it to attain value that allows it to be transferred and traded easily among other organizations that results in offering them with vast new equity capital (Burns & Dewhurst, 2016). When the value is easy to transfer, liquidation is made immediately that makes the value of the share of the firm to be higher than firms that are not traded in the public. However, the disadvantages of IPO include disclosure and pressure from the shareholder, regulation of corporate governance procedures and policies, expenses, and increased liability risk (Burns & Dewhurst, 2016).

Financial Challenges Entrepreneurs Face

Fewer Networking Contacts

When most entrepreneurs start their businesses while they are in their 20s or 30s, their agemates are probably starting theirs too. Thus, they do not yet have the required connection web contacts or in high places with other successful businesses that might be willing to invest in their business idea (Mitra, 2012). Also, while looking for other options of funding, they might lack the well-placed links that might suggest their nascent businesses to a known venture capitalist, or one who might serve as a valuable reference partner in looking for funds. Thus, with the few connections in the world of business, most young entrepreneurs lack natural ways of promoting their services or products (Burns & Dewhurst, 2016).

Poor Credit History

An entrepreneur's credit history grows as their business succeeds and yields good fruits. Most older entrepreneurs generally had enough time to create a stable and high rating of their credits (Bellavitis et al., 2017). However, young entrepreneurs are still the stage of making mistakes and building their credit history which might make loan companies and credit card companies reject them for financing or offer very high rates that might not be affordable to them (Bellavitis et al., 2017).

Fearing Debt

No one likes to owe people money, but as entrepreneurs grow older in their businesses, they realize that some debts are always positive, depending on the amount and its purpose. For instance, when an entrepreneur takes a short-term business loan while planning carefully the right rates of APR and repayment schedules, they can have better ways of solving early cashflow issues or startup capital (Brown, 2016). However, some young entrepreneurs often fear to get into debts and piling the debts too high.

No Safety Net

Old and successful entrepreneurs often have ready retirement pension and funds that they can rely on when their business fails. However, new or young entrepreneurs might be having challenges to raise funds for their startup. Thus, the lack of a financial safety0net might worry the young entrepreneurs (Brown, 2016).

How to Overcome the Challenges

Young entrepreneurs can always write a business plan before starting their businesses as the plan will showcase how the business is perceived to emerge and its operational plans. Once the plan has been written, an external or internal resource should be allowed to collate the bankable documents with the relevant data supporting it (Mitra, 2012). Additionally, the entrepreneurs should accept that the business economy is always transforming in different formal structures that can be operated by processes and systems in the future. the action will always help them take procedures towards paying taxes and creating balance sheets.

The entrepreneurs should, thus, be integral to gain more confidence in MSMEs and create collateral so that they do not become issues during the borrowing period (Burns & Dewhurst, 2016). Moreover, they can analyze quarterly movements of the working capital over the past few years, selling price movements, seasonal price fluctuations, constraints of supply and demand in peak and non-peak seasons, to...