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Funding a New Venture with Company Revenue
Some startup ventures are fortunate enough to fund various stages of business development and growth with funds generated by the business activity. For example, at the seed stage a services firm may be able to take on client work that provides the revenue necessary to establish the business (i.e., develop the full panoply of operations and services offered) and hire employee service providers. A product business, on the other hand, will generally need some level of infusion of capital to develop and test the product before generating income. As such, revenue funding may not be a viable option unless the product business is combined with a service function.
Lifestyle businesses often attempt to use company revenue to operate the business and achieve any available growth. They may also look to debt arrangements to supply critical funding (such as a rotating line of credit to meet payroll). Lifestyle businesses rarely seek or qualify for equity investment from outside investors. Investors generally for growth potential and orientation that is not present in the lifestyle venture.
Startup Ventures are growth oriented. These companies generally reinvest all profits from revenue back into the business to achieve growth. In many cases, the revenue generated by the business is not sufficient to maximize the business’s growth potential. That is, value is lost by failing to acquire outside funding (debt or equity) sufficient to achieve the firms full growth potential.