Evaluate sources of finance and select appropriate funding for the start-up and growth of a venture.

What this dot point is asking

You need to show you identified how much money the venture needs and when, and chose realistic funding sources with a clear justification.

Equity versus debt

This is the core distinction.

• Equity finance raises money by selling a share of ownership (to the owner themselves, family, or investors). There is no repayment, but the new owners share profits and control.
• Debt finance borrows money that must be repaid with interest, regardless of how the business performs. You keep full ownership, but repayments are a fixed drain on cash.

Common sources for a new venture

• Owner's funds (personal savings) - simplest and keeps full control, but limited and risks personal money.
• Family and friends - quick and flexible, though it can strain relationships if the venture struggles.
• Bank loan or overdraft - structured debt; predictable but needs a credible plan and often security.
• Crowdfunding - many small contributors back the idea online, which also tests demand and builds an audience.
• Grants and competitions - government or organisation funding that need not be repaid, but is competitive and conditional.
• Angel investors and venture capital - larger equity sums for high-growth ventures, in exchange for a significant stake and influence.

Evaluating the options

Compare sources against:

• Cost - interest on debt, or the share of future profit given up with equity.
• Control - debt keeps ownership; equity dilutes it.
• Risk - debt must be repaid even in a bad month; equity does not, but is harder to raise.
• Availability - what a student-stage venture can realistically access.

Bootstrapping and the cost of giving up equity

Many successful student ventures bootstrap: they fund growth from their own savings and from the cash the business generates, deliberately avoiding outside finance until they have to. Bootstrapping forces discipline, keeps full ownership and control, and means there is no investor pressure or interest burden, but it limits how fast the venture can grow. The opposite approach, raising equity early, brings in money and often expertise and contacts, but it dilutes the founder's stake permanently: selling 30 per cent of the business to launch can prove very expensive if the venture later succeeds, because that share of all future profits is gone. SACE rewards students who recognise this trade-off and explain why they would bootstrap, borrow or raise equity at a particular stage, rather than treating outside money as automatically good.

Matching finance to stage

Start-up costs (one-off, upfront) suit owner funds, grants or a small loan. Growth (scaling to more clients) may justify reinvested profit or a larger investor. Over-borrowing early, before demand is validated, is a common cause of failure.

Linking forward

Your funding choices appear in the cash flow forecast (as cash inflows) and in the cost structure (interest repayments). A clear, realistic funding plan is a required part of the financials in the external Business Plan and strengthens the credibility of your pitch.