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What is Startup Capital and How Much Capital Do I Need?

male business owner holding a notebook at a desk

If you are thinking about founding a new company, you likely have numerous questions about the financial and legal steps you need to take in order to turn that vision into a reality. One of the most urgent questions that aspiring business owners tend to grapple with is, “What is startup capital and how much capital do I need in order to successfully launch my new company?” The answer to this question has become more complex in recent years, due to the variety of ways that aspiring startup founders can now acquire the funding and financing necessary in order to get their new businesses off the ground and turning a profit. Essentially, the answer to this dynamic question depends somewhat on your circumstances and your new company’s unique needs.

What Is Startup Capital?

Startup capital, commonly referred to as seed money or seed capital, is the money used by aspiring startup founders in an effort to launch their businesses. Startup capital can generally be acquired in the form of financing through loans, selling shares of the company through the issuance of stock, securing numerous small investments through crowdfunding, accepting gifts and donations and raising funds through other standard and creative means.

Startup capital is used for a variety of different purposes during the initial phases of business development. For example, in order to operate legally, new companies need to incorporate. There are both regulatory and legal fees associated with the incorporation process. Similarly, companies need to secure premises, obtain necessary licenses, raise funds for equipment and supplies, hire employees, invest in marketing, pay utilities and otherwise “get rolling.” Most of the time, startup capital is used for all of the expenses a business anticipates it will incur until it begins to turn a profit.

When you work with an experienced business attorney in order to construct a financing plan for your startup, you will need to consider which sources of startup capital will best suit the needs of your new company. For example, if you require significant funding because you plan to launch a tech startup that will employ a few dozen people and will begin (in-part) by heavily investing in research and development, you may benefit from approaching a venture capital firm. If your enterprise is more traditional and a safer “bet,” you may benefit from approaching a bank for a small business loan. If your operation is going to be relatively small and will appeal to a niche clientele, crowdfunding may be an excellent source of startup revenue for you. However, if your startup is going to depend on aggressive growth, you may benefit from a corporate structure in which you can raise several rounds of seed funding through sale of shares in your enterprise. Your approach to obtaining startup capital will thus be dependent upon your business model and your company’s needs.

How Much Startup Capital Do I Need?

The amount of startup capital you will need in order to successfully launch your new business will depend upon a variety of factors. Obviously, a single storefront bakery operation employing seven people will require a different amount of startup capital than a new clothing manufacturing company set to employ upwards of 200 people would. It is therefore important to carefully consider the costs you will encounter before you are likely to begin turning a reliable profit. It is also important to take into consideration whether you plan to grow, develop and/or expand at a certain rate. Again, you will have to account for different costs if you plan to eventually open several bakeries as opposed to one.

Working with an experienced business attorney in order to generate a realistic financing plan, budget and general approach to your startup phase of growth is imperative, simply because this stage of business development is both foundational and notoriously complex. If you do not appropriately estimate how much startup capital your business will require, your vision may never materialize. Alternatively, you may be able to launch your business but will either be prohibited from growing your company or even from sustaining a reasonable operating budget. It is worth noting that it is generally better to overestimate your expenses than to underestimate them, as you are likely to encounter unexpected costs at one point or another.

Legal Guidance Is Available

If you are interested in founding a startup or opening a new business, please consider scheduling a consultation with LawTrades today. Our experienced business attorneys have helped thousands of aspiring startup founders and business owners acquire financing and complete the legal registration paperwork necessary to launch their companies. We are dedicated to assisting enterprising individuals as they transition from startup vision to reality and we would be honored to help you do the same. The LawTrades team looks forward to speaking with you.