Welcome to the next snippet of the quick course where the money is. We're going to focus on the informal sources of funds and the snippet. It contains the introduction to the many oceans of money out there available for you to finance your company. The focus is to determine what is the best source for your company or you are in situation, maturity of business, and how large you want to take it. There are many alternatives, we're going to look at all of the major ones in a large amount of detail over the next snippets. The money comes in two large oceans, the informal and the formal.
The formal one is initiated by thinking for startups by venture capitalists and related investors. They focus on getting a company to the initial public offering in less than a decade, typically five years would be ideal. They're run by professionals involving large amount of money. Informal pool ranges from individual money to large organizations institutions in the personal private equity markets. Typically it's thought of as someone that wanted to make a loan to make a lot of interest on it or a few shares of stock and something. In the movie, Howard Gump said to a friend he had invested in Fruit Company.
What they did turn out to be Apple Incorporated, the computing company. The informal pool is much larger than the formal one, the informal one is seven times greater than the formal one. Yes, seven times greater than the formal one. That's a lot of money. The informal one contains things more than small businesses. You can see here examples of what is there.
These are a lot of zeros measuring their size. That kind of investing is done by institutional investors and wealthy family money in the form of everything from stock to turnaround, some businesses and everything in between. It's a vast amount of funding. We're not going to talk about it here. Instead, we're going to focus on what we nicknamed startups, and it's related informal sources of startup money. These are coming in the following flavors, credit cards, mom, dad, Uncle Joe, Doctor, dentist, lawyer money and wealthy people.
The credit card business has indeed spawned real companies like Dell computer. Michael was a student in Austin in the days of the original wave of personal computing, students wanted computers. He asked them what size disk memory monitor keyboard, took their cash, went down to the new computer stores, and with a credit card, bought that computer which was assembled, and a few hours later, he would deliver it to the students. That's a difficult kind of business to run successfully. It's very, very unlikely. That's why we call it a bootstrap.
What's a bootstrap? That's a company that you think about lifting yourself off the ground by the bootstraps, it's very hard to do. It requires very large profit to be successful because that's the only form of capital to grow the business. Rarely does it become an initial public offering success, in spite of what you think, based on what you read in the media. Family, friends and fools is the label for the following kind of money. Mom, dad and uncle Joe would be glad to lend you funding.
We know you You're smart. You've done well with your life. Here's the money pay us back when you're ready. It rarely involves them owning some shares in your company. But don't take that money unless you're willing to make the following telephone call. Ding a Ling Ling.
Hi, mom. Hey, can you put it on speakerphone? I want to talk to you and dad. I've got good news and bad nose. Good nose, I learned a lot. Bad news just lost all your money.
I've been there multiple times when that phone call has had to be made. Remember, this is high risk. This is not a business that's got the odds of success in favor of it for anyone. This form of money from professionals in these professions is often casual and eager. It does invest often and it can constitute some pretty good seed money. The cost of the money, however, is not cheap.
It's not much less than venture capital money. And the board of directors can contain people unfamiliar with the technology, making it awkward to make operating decisions. I've been on the company's board which a medical doctor was present and insisted he understands how the technology works before he could then make a decision to spend money to grow the marketing department. That makes it very awkward. Think about this form of money and that kind of problem before you take it. Well see wealthy people are the small business owners that have some significant local businesses.
They made a lot of money, taking high risks and understand entrepreneurs well, their cost of money is surprisingly low compared to the risk that they're willing to take to invest in your business. approach them through their service providers and their social contacts, you'll need a very, very sharp, compelling, short elevator pitch, you'll get one phone call and that's it. They're either in or out on that phone call. The other informal and sources and uses are related to industries like this. I'm not going to focus on those. I'll leave those up to another point, another time and another purpose.
Remember, the informal pool is huge. There's a lot of money here available for you. The next snippet is now going to move on to venture capital. We're going to take a look at that. I look forward to heading there. Let's get going.
I'll see you there. Goodbye for now.