Funding Gap

What is a 'Funding Gap'

The amount of money needed to fund the ongoing operations or future development of a business or project that is not currently provided by cash, equity or debt. Funding gaps can be covered by investment from venture capital or angel investors, equity sales, or through debt offerings and bank loans.

Most often used in context with early-stage companies during the initial stages of research, product development and marketing.


BREAKING DOWN 'Funding Gap'

The ease with which a very young company receives funding depends on many factors including the viability of the business model, barriers to entry for that particular industry, and overall economic and market conditions. When the stock markets are strong, venture capital investors are much more likely to fund startup companies, and may even become less stringent in their eligibility criteria.

Funding gaps are also more likely at these early stages because a company won't know what its full operating expenses will be until it reaches a more mature stage and, at first, there aren't likely to be any meaningful revenues coming in.

RELATED TERMS
  1. Capital Funding

    The money that lenders and equity holders provide to a business. ...
  2. Venture Capital

    Money provided by investors to startup firms and small businesses ...
  3. Seed Capital

    The initial capital used to start a business. Seed capital often ...
  4. Venture Capitalist

    An investor who either provides capital to startup ventures or ...
  5. Debt Fund

    An investment pool, such as a mutual fund or exchange-traded ...
  6. Venture Capital Funds

    An investment fund that manages money from investors seeking ...
Related Articles
  1. Professionals

    The Stages in Venture Capital Investing

    CFA Level 1 - The Stages in Venture Capital Investing. Learn about the role of venture capital in financing new businesses. Covers the various stages of financing provided by venture capitalists.
  2. Entrepreneurship

    Choose The Best Way To Fund Your Startup: Are Loans Or Equity Right For You?

    Which is better for a startup - debt or equity? Here are the advantages, challenges, and criteria.
  3. Entrepreneurship

    A Look Into The Secrets Of Venture Capitalism

    Venture capitalists own an equity stake in the start-up and have a say in the functioning of the company. Investments are generally made in early stages of a company with long term high growth ...
  4. Entrepreneurship

    The Risk And Rewards Of Investing In Startups (GOOG)

    Investing in startups is a very risky business but can reward investors greatly if and when they do pay off.
  5. Economics

    Understanding Capital Investment

    Capital investment is a term that describes a company’s expenditures for long-term assets used in the operation of its business.
  6. Entrepreneurship

    Does Your Startup Need Venture Capital Money?

    Venture capital funding provides capital to grow a business. However, entrepreneurs will also lose some control over business decisions.
  7. Investing

    A Look into the Exciting World of Venture Capital

    We look into the world of venture capital, where deep-pocketed investors gamble on funding the next big startup (or the next big flop).
  8. Entrepreneurship

    Is Equity Financing the Right Choice for Your Business?

    Discover the benefits and drawbacks of equity financing for a small business, and learn when equity financing should be used instead of debt financing.
  9. Personal Finance

    Seek An Adventure In Venture Capital

    Make a career out of chasing down the "next big thing".
  10. Entrepreneurship

    Can I Become An Angel Investor?

    Because of SEC rules, you already need significant assets to become an angel investor.
RELATED FAQS
  1. How is venture capital different from other kinds of equity financing?

    Learn how venture capital equity financing differs from other funding options and what companies need to be aware of prior ... Read Answer >>
  2. What type of funding options are available to a private company?

    Understand how private companies can obtain financing for startup, growth or expansion projects, and learn how this differs ... Read Answer >>
  3. What is the best form of equity financing for a start-up company?

    Learn the equity financing options available to small business, and understand the best equity options for companies during ... Read Answer >>
  4. Why would a company use a form of long-term debt to capitalize operations versus ...

    Learn about the different consequences of using long-term debt versus equity to raise capital for business activity, and ... Read Answer >>
  5. Where does venture capital come from?

    Obtaining funding from venture capitalists is the way to go for those who have great ideas with potential for becoming lucrative ... Read Answer >>
  6. What are the different equity financing options available to companies in the United ...

    Learn what equity financing options are available to small, mid-sized and large companies within the United States and understand ... Read Answer >>
Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  4. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  5. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  6. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
Trading Center