Funding or Capital for Startup is the money required to launch a new business. It can obtain from multiple sources and can be used for any purpose that helps the startup to go from idea level to actual business operation.
Startups are a very lucrative, easy way to make millions and become headline in News as a millionaire. When a brilliant unique idea boils up in your mind, just write it down on paper. Make a super fantastic business plan, financial projections, and vision how you can tap that billion-dollar market. Next, explain your business plan to investors and they fund you immediately.
If you also thinking like this, Wake up from your dream! It’s Time for a reality check. No investor is going to invest in your idea level plan Startup. You required to prove your idea and business model first.
- Some people required funding after they prove a business model concept, while others dream of funding even before the execute anything. The ideal time for raising funding is when you found your product/market fit, that means you have customer base and they are loving your product. But still many people start looking for funding at the idea level. It is almost impossible for first-time entrepreneur.
- A business can sustain in long term if it is based on Bootstrapping. It means it needs your initial investment and then can run itself from generated Working Capital. Many startups rise with help of funding but fails later and due to lack of external funds. These startups burn huge funds of Investors and end up paying nothing in return to them.
For Startup Planning, Read This Article.
How to Get Initial Funding
- Bootstrapping : It is Self-funding, also known as bootstrapping, is an economic way of startup financing, especially when you are starting your business. New entrepreneurs have trouble in getting funding without first showing some traction and a successful plan for potential success. We can invest from own savings or can get family and friends to contribute in business. This will be easy to raise funds due to less formalities/compliance and less costs of raising. In most situations, family and friends are flexible with the interest rate. Self-funding or bootstrapping should be considered as a prior funding option because of its multiple advantages. When you have your own money, you are tied to business. At a later stage, investors consider this as a good point. But this is best fit only if the initial funds requirement is small. Some businesses need money right from the day-1 and for such businesses, bootstrapping will not be a good option.
- Crowdfunding: It is one of the ways of funding a startup that is gaining lot of popularity later. It’s like taking a loan, contribution or investments from more than one person at the same time. An entrepreneur will show a detailed description of his startup business on a crowdfunding platform. He will mention the vision and goals of his business, plans and projection for making profit, how much funds he need and reason with use of that fund. Then consumers read about the business and give money if they like the business idea. Anyone can contribute money toward growing a business that they really believe in. The good thing about crowd funding is that it can also generate consumer interest and helps in marketing the product with financing. It is also a boon if you are not sure whether there will be any demand for the product you are working on. This process can cut out professional investors and brokers by putting funding in the hands of common people. It can also attract venture-capital investment if a company has a particularly successful campaign.
- Angel Investment: These are individuals with extra cash with a keen interest to invest in new startups. They also work in groups of networks to screen the business proposals before investing. They can also offer mentoring or advice with capital. Angel investors helped to start up many famous companies, including Google, Yahoo and Alibaba. This alternative mode of investing generally occurs in a company’s early stages of business growth, with investors expecting a upto 20-30% equity in share capital. They prefer to take more risks in investment for higher returns. Angel Investment as a funding option has its cons too, they invest lesser amounts than venture capitalists.
4. Venture Capitalist: It’s a place to make the big bets. these are professionally managed funds who invest in companies that have huge business potential. They generally invest in a business against equity and exit when there is an IPO launch or an merger. VCs provide expertise, mentorship and acts to analyse where the organisation is going, evaluating the business from the initial sustainability and scalability growth point of view. A venture capital investment may be appropriate for small businesses that are beyond the startup phase and already generating revenues with customer base. Companies had fast-growth like Flipkart, Uber, etc with an exit strategy already in place can gain up to twenty of millions of dollars that can be used to invest, network and grow their business quickly. They typically look for larger opportunities that are a bit more stable, companies having a strong team of management and a good traction. Founders also have to be flexible with their business and sometimes give up a little bit more control for VCs funding.
Here is a list of popular Angel Investors in India – Inc42
5. Business Incubators & Accelerators: New businesses can consider Incubator and Accelerator programs as a funding option found in almost every major city, these programs helps multiple startup businesses every year. Generally used interchangeably, there are few fundamental differences between this two terms. Incubators are like a parent to to a child, who nurture the business providing shelter tools and training and network to a business. on the other side, Accelerators so more or less the same thing, but an incubator helps/assists/nurtures a business to walk, while accelerator helps to run/take a giant leap. These programs normally run for 5-10 months and need time commitment from the founders. You can also be able to make good connections with mentors, investors and other fellow startups using this platform.
6. Raise Funds By Winning Startup Contests: Contests has helped to maximize the opportunities for capital raising. It encourages entrepreneurs with business ideas to set up their own companies. In such competitions, you either have to build a product or prepare a business plan. Winning these competitions will also get you some media coverage and product popularity. You need to make your project stand out in order to improve your success in these contests. You can either present your idea in person or pitch it through a proper business plan. It should be potential enough to convince anyone that your idea is worth investing in.
Some of the popular startups contests in India are NASSCOM’s 10000 startups,
7. Loans from Banks or Financial Institutions: Traditionally, Bank is the first place that entrepreneurs go when thinking about funding. The bank provides two kinds of financing for businesses. One is working capital loan, and other is funding. Working Capital loan is the loan required to run cycle of revenue generating operations, and the limit is usually decided by hypothesizing stocks or debtors. Funding from bank would involve the usual process of sharing the business plan, Project Report and the valuation details, based on which the loan is sanctioned.
8. Microfinance Providers or NBFCs: If Bank loan is not sanctioned, There is still an option. Microfinance is basically access of financial services to those who would not have access to conventional banking services. It is increasingly becoming popular for those whose requirements are limited and credit ratings not favored by bank.
9. Govt. Programs That Offer Startup Capital: The Government of India has launched 10,000 Crore Startup Fund in Union budget 2014-15 to improve startup ecosystem in India. In order to boost innovative product companies, Government has launched Startup India program.