India is witnessing the emergence of start-up ecosystem from last few years. And it is a very good thing for the country’s economy. After studying the statistics it can be easily seen that most of the entrepreneurs in our country are the youth. It is pertinent for start-ups holders to be focussed and strategic in their approach. Whether it be equipped with a good understanding of market dynamics or it may be economics of competition and competitors. It is very normal that any new venture has to go through entry barriers like government policies, competition, and economies of scale, product differentiation to withhold market, different kind of taxes and many other things. Apart from all these fund plays the most important role for any business and when it is a start-up it matters even more! In this article we are going to provide a guide for the Start-ups to raise their fund.
Ways to Raise Money for Your Startup
Crowdfunding is considered as a major tool to raise fund for start-ups. In Crowdfunding, entrepreneurs take small amount of money from a large number of individuals to finance their new business. Crowdfunding makes easy accessibility of vast networks/ large number of people through social media and other crowdfunding websites. This helps to bring investors and entrepreneurs together. Crowdfunding has the potential to increase entrepreneurship by expanding the pool of investors from whom funds can be raised beyond the traditional circle of owners, venture capitalists, friends and relatives. Through the social media or Crowdfunding websites it makes easy for the entrepreneurs to approach large no of people for funds. One of the best thing about crowdfunding is that it makes the marketing of the products even easier. But before starting it keep in mind that there will be too much competition in this to get fund. Your business should have potential to attract people to invest in it.
Get an Angel Investor
Having an angel investor for your venture is also a good option to raise funds for your start-up venture. Angel investors are generally people who have enough of fund and are ready to invest it in other’s venture against some share in form of equity. This is a best option to cover the capital shortage of your venture. But their investment decision depends on investors, if your business plan is good and it has the potential to grow then the investors will be ready to invest otherwise we you will have to look for other option. Angel investors are the one who have helped many big companies such as Google and Yahoo. The funding is mostly required in the initial stage and this can seriously help you.
One of the most common option which most of the people will use to raise capital for their new business is through a loan through the bank which is mostly a business loan. This is the most common option and easily available one. Your lender bank may request you to have a loan guaranteed or a collateral before approving the loan. The lender bank generally have some crater such as they will ask for the total last year turn over from your business, the applicant’s credit score and some other things too.
Business Line of Credit
Line of Credit is the new financial tool which can help a lot to the new ventures. It is somewhat same as that of using credit cards. You are provided an upper limit till which you can withdraw money when ever need. No need to go through the long process of bank, get a credit line account with a bank and you are eligible to borrow money from it. The interest is charged only on the amount borrowed. One can even borrow frequently whenever needed until he/she reaches the maximum amount. The repayment can be done in the same way as in case of any loan, i.e. through EMIs. The money borrowed can be used for anything like purchasing inventory, paying staff, paying rent and many more but it should be related to the business.
Second Mortgage is also known as the Home Equity Line of Credit (HELoC). These loans generally tap into the locked up equity you may have in your home. To know that how much you can borrow from a second mortgage, take the value (price) of your home and deduct the value of any outstanding mortgage from it. You should be aware of the fact that some lenders may only lend only up to 70 – 80% of the value of the home, only a few is ready to lend you the full value. One of the advantages of taking a second mortgage is that the interest rate tends to be lower than any others financing. This is due to the fact that -the bank knows they can easily recover the value of the loan by foreclosing on your property if you are not able to meet your interest payments.
Venture Capital is basically financing that investors provide to startup companies and small businesses who have strong potential and long term growth as well. Venture Capital generally comes more from the angel investors, investment banks and other financial institutions who are ready to give money. However, it is not always done in form of monetary support, but apart from this it can be done in the form of technical or managerial expertise.
However a risk factor is always involved in providing fund to the start-ups. But still there are many ways to reduce the risk factor, doing proper market analysis, understanding the customers, having good staff can reduce all the risk factor. This works in favor of both the entrepreneur and the investor by reducing the risk factor and increasing the chances of business earning profits. There exists multiple ways for a startup to generate working capital and is very essential to take it forward and make it a full fledged entreprise.