12 sources of finance for entrepreneurs: Make sure you pick the right one!

Wout Bobbink
May 22, 2018

This article was originally published by The Finance Navigator, a startup company which simplifies financial planning and cash flow management for other startups.

A couple of weeks ago the Dutch Chamber of Commerce announced the number of newly started companies in the first quarter of 2018. Guess what? It was the highest number in five years’ time, and there were ten percent more new companies compared to the first quarter of 2017! And what does a higher number of companies imply? More competition for available capital! So, are you looking for financing for your firm? Well, don’t worry too much…

There is more than enough funding available in the Netherlands. It won’t hurt, though, to do some research into which forms of financing exist. This will help you choose the source of funding that best suits your situation and company stage. This in turn increases the chances you will successfully raise funding. The overview below will help you make the best choice.

12 sources of finance for entrepreneurs

1. The Founders

Explanation: Have some savings left yourself? Just received a nice bonus? Why not invest it in your own company! You don’t necessarily have to invest in terms of cash. If a co-founder or a partner invests his/her hours in helping you start your business next to his/her job, that is also considered an investment. Or what about a founder making an office, machines or a technology license available? All of these are sources of investment. Temporarily not paying yourself any wage is also an option.

When to choose this source of financing: Founders can obviously invest in their own company at all times. However, you usually see this happening when the company has just been founded. When a company is set up, in many cases no revenues or external financing is available, while there are always some startup costs to cover. In terms of the size of the investment, you can go all out (as far as your bank account allows you to). Advantage of this form of investment: it may be perceived as positive by an external financier that a founder has some “skin the game” as well. Why would another person take the risk of investing in your company if you have never been prepared to take the risk yourself?

2. The 3F's: Family, Friends and Fools

Explanation: Before you approach professional investors, it might be worthwhile to raise some funding within your network of family, friends and fools. These are often people from your family or social network who are close to you and mainly invest because they have faith in your idea or in you as a person/entrepreneur. As they are usually not professional investors, you should not expect a professional assessment of your plans from such an investor.

When to choose this source of financing: This type of financing is often pursued to cover the costs of setting up a new company or to bridge the gap to a first round of seed funding. The advantage of this funding type is that it is a quick and cheap way to collect cash, especially if you take into account the risk of the Fs (which they are not always aware of themselves: hence “fools”). Usually the amounts invested are not too high and are typically repaid as a loan (with or even without interest) or are invested in exchange for a small equity share in the company. When the invested amounts, share percentages and the level of professionalism increase, then we speak of angel investing.

3. Angels/Informals

Explanation: Angel or informal investors are experienced entrepreneurs who have some funds available (often from previously exited ventures) and invest those in new companies to help other entrepreneurs succeed in their business. Angel investments start around €50,000 and can amount up to (more than) a million euros, as angels often invest together in groups.

When to choose this source of financing: Go for an angel if you are looking for seed funding within the above-mentioned range. Angels typically offer “smart capital,” not just money, but also network and knowledge within specific sectors. Try to find an angel who fits with your company in terms of experience and sector knowledge. You can find two overviews of active angel investors in the Netherlands here and here.

4. Crowdfunding

Explanation: Nowadays, it is hard to imagine crowdfunding once didn’t exist in the Dutch (and international) financing ecosystem. With crowdfunding, the “crowd” finances the funding need of a company. Usually crowdfunding is performed via an online platform where entrepreneurs offer investment opportunities on one side of the platform and on the other side of the platform a large group of people invest small amounts to meet the entrepreneur’s investment need.

When to choose this source of financing: In general, there are three types of crowdfunding: loans, pre-orders/donations and convertible loans. Are you looking for a loan, but is it hard to secure one from the bank because your risk profile is too high? Then try loan crowdfunding. Do you have a prototype available and do you want to test the product/market fit, but you cannot finance the production/delivery of the first batch of actual products? Then go for pre-orders/donations. Well-known examples of suitable platforms are Kickstarter and Indiegogo. These platforms are mainly suitable for products/projects/gadgets aimed at the consumer market with a strong design element to them. Convertible loans have the following advantages: 1) no shares are being issued, 2) valuation discussions are postponed until the moment the value of a company can be better determined and 3) it is an easier, faster and cheaper process than an actual share transfer. Leapfunder is an example of a Dutch crowdfunding platform that works with convertible loans.

Since the people who invest via crowdfunding platforms are not always professional investors, crowdfunding is better suited for propositions that are not too complex or technical and that are easily understood by the general public (that’s why it’s called “crowd” funding). Think of consumer products, for example. There are also crowdfunding platforms with a specific focus, so take that into account when choosing. Dutch crowdfunding platform Oneplanetcrowd, for instance, focuses specifically on sustainable projects with a positive impact. Here you can check out a list of crowdfunding platforms in the Netherlands.

5. Subsidies

Explanation: A huge number of tax/financial schemes (e.g. in the Netherlands: WBSO, InnovationBox, vouchers) and subsidies (e.g. Horizon2020, regional subsidies) exist. The aim of subsidies/schemes is typically to stimulate entrepreneurship, innovation/R&D or economic growth within a certain geographical area. That is why every region, every country and even the entire EU has its own subsidies.

When to choose this source of financing: ALWAYS, we can be very brief about that) Subsidies are relevant during almost every company stage. From startup to corporate, from freelancer to publicly traded company. As mentioned before, many subsidies only focus on a certain geographical area and often there is also a specific sector focus. Therefore, it is important to look for a subsidy that fits with your company. For an overview of available subsidies/schemes in the Netherlands, check out the website of the RVO. Keep in mind that administrative and reporting requirements often apply to subsidy applications and grants. You need to be able to justify the costs for which you request a subsidy and sometimes it is mandatory to have this justification audited as well.

6. Venture Capital/Private Equity

Explanation: Private equity is the collective name for professional investment firms that invest in companies not publicly listed. Venture capital (VC) is a type of private equity which focuses specifically on risky investments in terms of early stage companies. People often speak of private equity when investing in larger organizations that are existing for some time already. Venture capital on the other hand involves investing in growth capital of young companies. In general, VCs have a fund available of a specific size (e.g. € 100 million) that has to be invested within a certain period of time (e.g. 10 years) in a bunch of companies with different risk profiles to spread the risk across the portfolio. The aim is to sell the shares after a couple of years with a certain return/profit.

When to choose this source of financing: Venture capital is mainly suitable for companies that have already passed the “seed stage” and are looking for series A or series B funding. This type of funding is therefore meant to help companies grow faster than when they would grow organically: for instance, if a firm wants to internationalize. VCs typically invest in the range of about €500,000 to €20 million. To raise funding from a VC, a company’s product/market fit has to be proven already and steadily growing revenue streams have to exist (except perhaps in the medical sector). However, there are also venture capitalists with seed funds (starting at €200,000) that offer seed capital to companies that have not met the above-mentioned criteria yet.

The advantage of VCs is they can fund multiple rounds, where an angel or other seed investor is not always capable of doing so. VCs often also have a specific sector focus and good knowledge/network within this sector. For a list of VCs active in the Netherlands, take a look at this overview.

7. Debt Financing: The Bank

Explanation: Even though there are a number of banks in the Netherlands with venture capital funds (including RabobankING and ABN AMRO), banks are generally more risk averse than for example angels, seed investors and normal VCs. This does not mean that banks do not finance entrepreneurs, on the contrary! However, they are more likely to invest in SMEs, in companies with lower risk profiles (than start-ups for instance) and when companies can offer collateral. For an early-stage start-up that does not fit in the focus of the VC funds, it can thus be difficult to secure funding from a bank. However, a number of banks in the Netherlands do have partnerships with crowdfunding platforms.

 When to choose this source of financing: as mentioned, banks generally take less risk than, for example, VCs and angels. However, if you can provide collateral then the bank is a very good option. Are you thus looking for working capital financing, stock financing or financing to cover investments in buildings/machines, then the bank is a very good option to consider. Companies generating stable income streams and that have been growing organically for a number of years (and are thus less risky) can certainly also turn to the bank. A big advantage of debt financing: you do not have to give away a part of your company in terms of equity, which means that in the long term it can turn out to be a much cheaper way of financing than for example securing funding from an angel investor or VC.

8. Factoring

Explanation: In short, factoring is a way of financing working capital by lowering the size of accounts receivable. Example: if you send an invoice to a customer, but it takes him/her 60 days to pay, then you can decide to ‘sell’ this invoice to a factoring company (against a certain payment of course). The factoring company will pay for the invoice immediately (or provides you with a loan) so that you do not have to wait 60 days before the invoice is paid. A factoring company can also take over the risk that a customer does not pay.

When to choose this source of financing: First of all, it goes without saying that you must have clients in order to be eligible for factoring. If you do not have any paying customers, factoring is not an option. If you do have customers, factoring can be very useful if you have to deal with long payment terms. Do you have large corporate customers? Then it can take a while for invoices to be paid and there is often not much you can do about it. In order to keep your working capital position healthy, factoring can be a good choice. Is accounts receivable management costing you a lot of time and effort? Do you often suffer from bad debtors? Then factoring could also be an option.

 9. Leasing

Explanation: Do you have to make large investments in assets such as computers and/or machines? Why don’t you lease instead of purchasing them? By leasing assets, companies can spread payments over a longer period of time instead of having to fulfill the full payment of an investment the moment they decide to purchase an asset.

When to choose this source of financing: When a company is capital-intensive, meaning it is dependent on the use of (sometimes expensive) assets such as machinery.

 10. Suppliers

Explanation: Do you purchase a lot from suppliers? Then try to negotiate favorable payment terms with them. If your customers have long payment terms, for instance, you can try to agree to longer payment terms with your suppliers as well so you do not run into any problems concerning your working capital. On the other hand, you could also try to discuss discounts in the event you pay your suppliers very fast.

When to choose this source of financing: Choose this form of financing if you have good relationships with your suppliers or if you have a good negotiating position with them (for example if you are a large/important customer for them).

11. Initial Coin Offering

Explanation: For an Initial Coin Offering (ICO), a company typically writes a white paper to pitch a certain business idea and asks the general public to finance the idea using Bitcoin and/or altcoins (cryptocurrencies other than Bitcoin). In return, the investor receives the new altcoin generated by the company during the ICO. Usually this newly generated altcoin is at the center of the company’s business activities and thus leveraged in a way that increases its value. As soon as this altcoin becomes tradable, investors can resell it (and hopefully make a profit). The ICO is therefore very similar to an IPO (see section 12 below) but uses cryptocurrency instead of shares that can be converted into “normal money.” Here you can find an overview of current cryptocurrencies.

When to choose this source of financing: It is possible to do an ICO as a non-blockchain company, but currently the majority of the companies that do an ICO are still blockchain/cryptocurrency companies. This is because the new altcoin generated by an ICO often has a function within the company to increase its value. The speculation that the value of the new altcoin will increase is what attracts investors.

12. Initial Public Offering

Explanation: The holy grail of financing: The Initial Public Offering (IPO)! An IPO is the public listing of a company, which means that it is the first time a company offers its shares to the general public. This means that practically anyone in the world (individuals or institutional investors) can invest in the company by buying shares at a certain value. Before an IPO, a company is private, which means it often only has a limited number of investors who have invested early-stage or growth capital. Think of the founders, angels and VCs for instance. Spotify just had a public offering, and there are rumors the Dutch company Adyen will have an IPO soon as well.

When to choose this source of financing: For a successful initial public offering, a company must be able to demonstrate years of strong growth and its proposition typically includes a certain network effect/scalability. Growth can be defined in several ways. This can be turnover or profit, but also, for example, the number of customers or active users. Spotify is a loss-making company but has been growing enormously over the past couple of years (in terms of turnover and users). A company also has to demonstrate transparency and confidence this growth will continue in the coming years, because it has to win the trust of the general public the value of the shares (which they buy today) will rise in the future so they can make a profit on their investment.

For the investors who owned a share in the company already before the IPO, a public listing can turn out to be very attractive (financially). An IPO should not be underestimated though: it is a very costly process and results in many reporting requirements for the public imposed by strict government regulations.

Wout Bobbink is the co-founder and Chief Marketing Officer of the Finance Navigator – an in-corporate venture of EY. Wout and his team are both our colleagues and alumni – they went through the HighTechXL accelerator program, next to guiding our startups into the development of their financial models. Wanna know more about their experience? Feel free to reach out (

Interested in corporate innovation? At HighTechXL we've been working with corporates for the past three years, supporting them to build their businesses. Find out here how we can help you take your company to the next level through innovation and entrepreneurship.

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