Today We are going to share the how-to guide for raising capital for startups
covering topic
- Bootstrapping Your Own Startup Business:
- Crowd-Funding: Next Newest Funding Options:
- Look for Angel Investors:
- Look for Angel Investors:
- Look for Business Incubators & Accelerators
- Take part in Winning Contests:
- Raise Money Through Bank Loans:
- Business Loans From Microfinance Providers or Non-Banking Financial Corporations are corporations (NBFCs):
- Government Programs That Offer Startup Capital:
- Other ways to raise your capitals:
- Next Step:
Cash is the most important to raise and sustain any kind of trade. The maximum of today’s business startups starts with investor confidence and real high hopes. The long careful yet energizing excursion from the plan to income-producing business needs a fuel named capital. As per an ongoing report, over 94% of new organizations come up short during the first year of activity. The need for financing turns to be one of the common reasons. That is the reason, at pretty much every phase of the business, business visionaries, entrepreneurs wind up asking – How would I account my startup? When you require funding capital wholly depends on what type of business you are in. here are few sources of finance choices for Indian start-ups and businesses that will guide you to raise capital, whenever you realize the requirement of fundraising.
- Bootstrapping Your Own Startup Business:
Bootstrapping simply means building a new business from the zero ground with nothing but self-funding, and with luck, the cash circulating with the first sales. It’s the most effective way of financing when you are in the starting phase of your start-up. It often considered as the first funding option, as being new in the game, you can’t afford investment agencies, due to lack of any traction and a solid plan for a full-proof success.
Obtaining funding from family and friends is a unique way to kick off your start-up. Here you may use your funding or may approach your friends and family who support you and your idea. This is an easy process as it comes with very little formalities, and usually family and friends are flexible with your due date or interest rate as compared to any external sources.
This process is also about stretching both the financial and otherwise resources; as far as you can.
Pros:
- Funds can easily be accessed
- Zero bureaucratic obstacles
- Flexible due date and interest rates
- You don’t dilute your ownership
- Control Over Direction
Cons:
- Personal risk
- Suitable only if your requirement is small i.e. self-financing works only for small-scale start-up business; don\’t work for large businesses.
So when you have money, you can think to start a small capitated business. In a later stage, you may think to go for investors. It continues to be an attractive option for new entrepreneurs. Entrepreneurs using bootstrapping techniques essentially have to prioritize only on their customers. If you can successfully bootstrap, then there is a fair chance that you end up with loyal customers and great products.
- Crowd-Funding: Next Newest Funding Options:
It’s one of the new options that evolve in the era of modern technology where one can share their business idea or model has a potential for growth with people in social media. One can challenge investors to support or donate funds for that business idea, what they have shared. This idea is getting a lot more popularity and works like taking up a loan in terms of contribution and investments from more people simultaneously.
In this process first, you have to set the funding goal very clearly. Then you can devise a reward strategy to motivate your investors and post a video on crowd-funding platforms with all the information on what’s your strategy to profit, how much capital you need exactly. Those who are interested will make an online pledge that will give a donation or pre-buy the products.
Though it sounds very easy; that you have to post your funding needs to get successful fundraising.to grab the attention of thousands of people, not less planning, execution and attention are required than a fundraising campaign.
Pros:
- There’s not much financial risk
- Your campaign could go viral
- A successful campaign may validate your business idea
- You keep all of your equity
- You can build your own business or can tap into any existing community
Cons:
- It takes time and money
- Your campaign might not succeed
- Someone could steal your idea
- It doesn’t work for all businesses like catering or painting
- The pressure is on
Crowd-funding platforms, with times, are finding more creative ways to fund new ideas, projects, start-ups, and businesses. Some of the popular crowdfunding platforms in India are WISHBERRY, ketto, medianetto, Indiegogo, FuelADream, Fundable, Catapooolt, Milaap – crowdfunding for personal and social causes, Crowdera and Impact Guru.
- Look for Angel Investors :
Angel investors are individuals with a lump sum amount of cash and interested to invest it as capital over new start-ups at the edge business ideas. They also act in a group of networks to scrutinize the business proposals before investing in a perfect candidate with the perfect plan. Apart from funding, they also provide regular monitoring and advice to help to start up many well-known companies like Google, Alibaba, and Yahoo. Upon investing in an initial startup stage and beyond, Angle investors expect to have 30% equity. Though Angle investors take more risk than venture capitalists in investment for high return, they have few shortcomings, as mainly it invests less amount than.
Like other forms of capital raising, angel investors also have their pros and cons. Let’s have a look on that;
Pros:
- An Angel Investor is willing to take a Risk
- Money is not a Loan; that indicates if your business falls flat, an angel investor would not expect you to pay back.
- Offer mentorship alongside capital for startups
- They are willing to take risks as they anticipate heavy returns back on investing in a new startup.
Cons:
- It might Set the Bar Higher
- You Aren’t in Full Control
- Provide lower investment capital
Getting and being successful with an angel investor is not an easy task, but it is not impossible also in the era of social networking and media. Here is a comprehensive list of most popular angle investors in India you can go for; Sanjay Mehta, Abhishek Bhatewara, Anand Govindaluri, Anoop Mathur, Bharat Banka, Devesh Chawla, Dishit Shah, Sharad Sharma, Rajan Anandan, Krishnan Ganesh, Meena Ganesh,Ritesh Malik, Kunal Bahl, Sachin Bansal , Anupam Mittal and Sunil Kalra . These are just a few names, you can check whether your terms of interest matches on not directly by going their websites.
- Look for Venture Capitalist:
If your business idea is really big, then Venture capital, also known as investment funding is the big bet for you. They are the professionally managed funds that have a keen eye to invest in companies having huge potential and great prospects. Financing through venture capital is an advanced step for your business if you are looking to raise remarkable investment for your business.
Generally, it invests in business against equity. Apart from funding it provides expertise, and guidance and helps to evaluate the business on the parameters of scalability and sustainability. In one line you may say it acts like a litmus test to get the best out of any business. Generally, it takes interest in small businesses, having strong team people, companies that are a little bit more stable, already generating revenue i.e. those have crossed the initial startup phase and.
You also have to be a little more flexible, in terms of losing more control over the business, so if you are not interested much in compromise and too much mentorship, this is not the best option for you.
Pros:
- Unlimited access to financial aid
- Credibility and integrity
- Connections & networking in the business community
- Corporate expertise
- Added resources such as active support to deal with critical issues like handling tax and legal matters
- Debt reduction
- Accelerated growth
Cons:
- Clash of management
- Micromanagement
- The uncertainty of the funding duration
- Profit share
- Lack of right growth structures and strategies
- Time-consuming
- No reliability
So, before approaching any corporate Venture capitals, it is significant to consider all the discussed points. Ou must consider getting advice from your attorneys and advisors to understand the strategy of it before you are opting for venture capital to save your business from loss. Here are some well-known venture capitalists in India; Sequoia Capital India, Helion Venture Partners, Accel Partners, Nexus Venture Partners, Intel Capital India, Blume Ventures, Inventus Capital Partners, IDG India Ventures, SAIF Partners, BESSEMER Venture Partners, Canaan Partners, DFJ India, Fidelity Growth Partners, Norwest Venture Partners, and Ventureast.
- Look for Business Incubators & Accelerators:
In early-stage businesses, as a funding option, you may consider Incubator and Accelerator programs. These programs assist thousands of startups every year in almost every major city across the globe.
These two terms though have used interchangeably, but have slight differences;
Business incubators act as a parent to a kid that helps/nurtures/assists by training, providing shelter tools and helps to grow the network of the business. Whereas, accelerators help to fast track businesses.
Pros:
- Provide a free or low-cost workspace
- Offer business development programming (workshops and panel discussions)
- Networking with fellow startups
Cons:
- Giving up a chunk of your company
- Aligning business needs with incubator needs
- Lots of must-attend events
It requires a time commitment from your end and normally runs for 4-8 months. Through this, you will also be able to create better bonding with the investors, mentors and other fellow startups who are using the same platform.
In India, popular names of business incubators and accelerators are; 500 Startups, TLabs, Cisco Launchpad, GSF Accelerator, Microsoft Accelerator, Indian Angel Network, CIIE IIMA, iCreate, Google Launchpad, Indavest, Seedfund, SINE, Srijan Capital, Khosla Labs, NSRCEL, Science and Technology Entrepreneurship Park, Startup Village, Technopark TBI, Amity Technology Incubator and Angel Prime.
- Take part in Winning Contests:
It’s an amazing alternative to raise the capitals for your startups is through participating in contests and completions. It encourages entrepreneurs to showcase their potential business idea against other competitors. It gives a chance to either prepare a business plan or build up your product, whereas a contestant it was expected from your side to present a detailed and comprehensive business plan to win investor’s confidence. It also helps to get some media coverage thus you may get the much-needed publicity for your startup business.
Pros:
- Provides opportunities for networking with connections that may be valuable in the future to the venture
- Gain Social Followers
- Provide an opportunity to interact with your customers
Cons:
- Distraction from focusing on product and customer development
- Opportunity cost
- Focus on investors, not customers
Here are some names of popular startup contests one can consider to take a part of; NASSCOM’s 10000 startups, NextBigIdea Contest, Microsoft BizSparks, Virtual VC FinTech & Payments, Hustle Raise, CatchFood CF, Startup London Club Pitch Night, IMPACT Methodology Cohort 2020, DM Event, Festival of Ideas and Lets Ignite.
- Raise Money Through Bank Loans:
Banking institutions are the first place where one can go to raise capital. As an entrepreneur, you have to present your business idea, with an estimated profit plan and time of maturity. Then it provides financial backup in terms of the loan.
The banking provisions are of two forms, one is funding and another is working capital loan.
Funding involves the usual process where you have to share your business idea, evaluation process, and the ongoing project report, depending on the qualities of this bank decide whether to sanction the loan or not. And whereas, in the working capital loan is designed to run one full cycle that generates revenue. The drawback of this process is that its limit decided by debtors and hypothetical stocks.
Pros:
- You will have all the money to start your business
- You can retain ownership
- You can protect personal wealth
Cons:
- They can be hard to qualify for
- These loans can restrict cash flow
- Your credit might be put at risk
Almost every bank in India (SBI, HDFC, Axis, Bank Of Baroda, Kotak-Mahindra bank, IDFC First Bank and, ICICI) offers bank loans for start-up business through various programs. There are numerous different options, you can check directly by searching their websites.
- Business Loans From Microfinance Providers or Non-Banking Financial Corporations are corporations (NBFCs):
When you are not qualified for a conventional bank loan, then you still have left with another option; i.e. microfinance providers or NBFCs. Microfinance is a setup that provides access to financial services to small-scale startup having a poor credit rating.
Similar to that Non-Banking Financial corporation (NBFCs) provides banking services to individuals who seek loans, without meeting legal requirements or definitions of conventional banks and credit repair services do.
Pros:
- Provide loans and credit facilities
- Trade-in money market instruments
- Can do wealth management (managing portfolios of stocks and shares)
- Can underwrite stock and shares
Cons:
- Cannot accept demand deposits
- It is not a part of the payment and settlement system, so it cannot issue cheques drawn to itself.
Here is a list of popular microfinance providers or NBFCs in India; Power Finance Corporation Limited, Shriram Transport Finance Company Limited, Bajaj Finance Limited, Mahindra & Mahindra Financial Services Limited, Muthoot Finance Ltd, HDB Finance Services, Cholamandalam, Tata Capital Financial Services Ltd, L & T Finance Limited, Aditya Birla Finance Ltd., Annapurna Microfinance Pvt Ltd, Arohan Financial Services Pvt Ltd, Asirvad Microfinance Pvt Ltd, Bandhan Financial Services Pvt Ltd, BSS Microfinance Pvt Ltd, Cashpor Micro Credit, Disha Microfin Pvt Ltd, Equitas Microfinance Pvt Ltd, ESAF Microfinance and Investments Pvt Ltd, and Fusion Microfinance Pvt Ltd.
- Government Programs That Offer Startup Capital:
The government program is an excellent way to raise funding for your startup. If you comply with the complete eligibility criteria, this could be the best for you. You need to be aware of such initiatives and submit a proposal to the grant committee. After thorough scrutiny, you will get the funds to start up your business.
Pros:
- Free money
- Less pressure
Cons:
- Narrow focus
- It can consume a lot of time, patience and energy
Here is the complete list over the states that come up with different programs to encourage startups. Startup India Initiative, ASPIRE, MUDRA Bank, Ministry Of Skill Development and Entrepreneurship, Atal Innovation Mission, eBiz Portal, Dairy Processing and Infrastructure Development Fund (DIDF), Support for International Patent Protection in Electronics & Information Technology (SIP-EIT), Multiplier Grants Scheme (MGS), Credit Guarantee Scheme for Startups (CGSS), Software Technology Park (STP) Scheme, Venture Capital Assistance Scheme (VCA), Loan For Rooftop Solar Pv Power Projects, NewGen Innovation and Entrepreneurship Development Centre (NewGen IEDC), Single Point Registration Scheme, NewGen Innovation and Entrepreneurship Development Centre (NewGen IEDC), Revamped Scheme of Fund for Regeneration of Traditional Industries (SFURTI), Single Point Registration Scheme (SPRS) and Coir Udyami Yojana.
- Other ways to raise your capitals:
There are a few more alternatives to raise your money;
Product Pre-Sale: one of the highly affected ways to finance your business is to sell your products before launch. By this, you can also improve your services and cashflow while preparing yourself to meet up the customer demand.
Selling Assets: though a tough step but you may consider it as an option to overcome the crisis.
Credit Cards: Business credit cards is a quick way to get instant money only if you need a small capital. As the interest rate is quite high, this process can be costly in your pocket.
Next step:
Now as you have come to the end of the article, you have enough idea on how to start and from where to start when you are dealing with fundraising. To grow fast you need to look for financial assistance from outside. You can think of bootstrapping when you have to kick-start your business than to take a giant leap you can go for venture capitals or so.
To keep growing and stay competitive in the market, you must switch your funding sources; which gives you flexibility and over-dependence on a single funding source.
FAQs:
- How do I fund a business with no money?
First, make sure of what you want to do and get for free. At least makeup six months’ worth of savings for investment. You can reach out to your friends and family for some more money.
- Can you get funding with just an idea?
Yes, it is possible to get funding for a startup if you even have just an idea from different sources such as high-level competitions, incubators, and also government and university schemes. Even the angel investors are much more likely to take a chance on an innovative startup idea.
- What is Goods and Service Tax (GST)?
GST is a destination calculated by the tax on the consumption of goods and services.
- Which authority will levy and administer GST?
Centre will administer and levy CGST & IGST while SGST will be levied by respective states.
- Is Your Business Ready For GST?
After 1st July 201, every business in India complies with GST.
- How do I get funding for a nonprofit organization?
The following sources of income to help to get fund;
- Fees for goods and/or services
- Corporate contributions
- Government grants and contracts
- Interest from investments