5 Most Reliable Ways To Get Your Startup Funded
An entrepreneur must be at once both the dreamer and the doer. The responsibility of converting the billion dollar ideas into billion dollar businesses rests on the shoulder of the doer. Often one of the biggest obstacles that lie in the path of this vision is the lack of funds to implement the dream. Indeed 8 out of 10 entrepreneurs crash within the first 18 months of their venture and a vast majority of these can be attributed to lack of sufficient funds.
Several entrepreneurs begin by self-financing. Termed as Bootstrapping, funding your business with personal savings is a good idea, especially during the initial stages. However, some startups require larger funds right from day 1 and bootstrapping simply does not suffice. In such cases, there are several ways to raise capital for the first (and subsequent) investment in your startup. Funding can no longer play a villain in your venture.
1. Crowdfunding
A relatively new way of raising capital, crowdfunding has been steadily gaining popularity, In simple terms, crowdfunding refers to the practice of funding a venture by raising small amounts of money from a large number of people. There exist several websites and platforms which facilitates the process. Usually, the entrepreneur uploads his business plan on a crowdfunding platform and gives details on his business goals, revenue streams, funds required and how he/she’s planning to spend the same. Customers on the website/platform can read the details and invest if they find the plan attractive. Those investing money will make online pledges with the promise of buying the product or are given equity with respect to the amount they have invested.
Crowdfunding provides the added bonus of generating interest from an early stage in the product and thereby contributing towards the marketing side. A successful crowdfunding campaign also makes it easier to attract VCs and raise capital in the future stage. Kickstarter, Dreamfunded, OneVest, and RocketHub are some of the popular crowdfunding platforms worldwide. In India, Wishberry, Indiegogo and Ketto offer crowdfunding services to entrepreneurs.
2. Incubators and accelerators
Incubators and accelerators provide the perfect shade for a new startup to grow and flourish until they are ready to function on their own. Besides funding, Incubators often offer mentorship in all business matters including technical expertise, financial advice and sometimes even soft skills training. JCurve, a Chandigarh based incubator while providing all the aforementioned also offers a positive work environment to build your startup from scratch.
Incubators also help you to build your network of Angel Investors and Venture Capitalists which makes it much easier to raise funding in future stages.
3. Angel Investors
Angel investors are usually high worth individuals ready to provide financial backing to small startups and entrepreneurs. Most of the time, angel investors are focused on helping the startups take the first step successfully rather than only on making profits from the investment. They are ready to take bigger risks in the hope of achieving bigger returns. They provide mentorship and guidance to the entrepreneurs under them.
Angel investors usually operate in networks for screening proposals and choosing startups for investing in. Incubators provide access to these networks and make it easier for a new entrant to make relevant connections. Some of the popular Angel networks in India are Indian Angel Network, Mumbai Angels, and Hyderabad angels.
4. Venture Capital funding from investors, investment banks, and other financial institutions
Venture capital is the financing provided to startups that are believed to have long term growth potential. Venture capitalists offer more money compared to Angel Investors and also have stricter screening processes. Most of the time VCs aim to recover their funding in a 3-5 year window.
Venture capitals are more suited to startups which have survived the initial stage and are already generating revenue.
5. Loans from Banks and NBFCs
Banks provide 2 kinds of loans: working capital loan and funding. Working capital loan encloses the amount required to run one complete cycle of revenue-generating operations. The limit is decided by hypothecating stocks and debtors. The second funding option involves requesting a loan of the required amount. The entrepreneur needs to share details such as the business plan, revenue streams, and valuation along with the project report.
In India, most leading banks such as HDFC, ICICI, and Axis bank have schemes that offer collateral-free loans.
For entrepreneurs who are ineligible to avail bank loans (due to bad credit score or similar reasons), microfinance providers, and Non-Banking Financial Corporations (NBFCs) are easily accessible options for raising funds.
The next step
Overall, the ease of raising capital to kickstart your venture has increased several folds in the recent decade. Choosing the correct funding option also depends on several factors such as the scale of the venture planned and stage in which it is at the moment. For example, a startup yet to start its operations can rely on bootstrapping and crowdfunding, while one which has already started generating revenue may receive the required assistance from venture capitalists. In India, the government too offers various schemes to help the new startups finance their operations and break even. Even those with no networks or contacts can slowly build their business under the mentorship of incubators. All that an entrepreneur needs to succeed, is the will to never give up and commitment to push on against all odds.