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LostInParadise's avatar

How are start-up businesses financed?

Asked by LostInParadise (18290 points ) July 7th, 2014

I have been thinking about worker cooperatives as a possible alternative to the capitalist business model. One particular problem that cooperatives have is how they can be financed initially. Given the cooperative ownership, there are particular problems of providing an incentive for a few people to put up a large start-up cost.

In order to understand the problem better, I would like to know what the ways are under capitalism that new businesses are financed. I have zero business knowledge, so please just provide basic information.

Two ways that I can think of are:
1. Venture capital – Someone with lots of money is willing to put up the initial investment in exchange for a share of the profits. This definitely would not apply to worker cooperatives.

2. Incremental growth – Starting small, the business owner invests part of the profit back into the business. At some point the business could be sufficiently large that it would be possible to secure a large loan using the business equity as collateral. This could apply to coops, but I suspect this is not the usual way that businesses start up.

If you wanted to build a moderate sized manufacturing facility, how could you go about getting the initial investment money required?

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