A start-up is a reflection of an out of the box idea which is put into execution for the generation of revenues through the sale of products and services that are unique and fills the gap of the consumer needs that are in the market. India is fifth in the world in the aspect of the startups with 3100 startups functioning since the last 3-4 years. India has been seeing a trend of risk-taking entrepreneurs who are willing to sacrifice huge opportunity costs for startups. But, according to a study, more than 94% of the business leads to the falling scenario due to the lack of sufficient funds. Lack of funding is a common barrier seen in the startup world. The known example of the Saurav Karukar’s startup SASLAB technologies in 2014 was due to the lack of funding. The generation of revenue is not a piece of cake without the constant fuel of funding to the business. So, most of the times this inquisitive question hits the mind of every other entrepreneur: How my startup should be funded?
The funding of the business also depends on the nature of the business and the type of the business. Some startups that are unique but the idea holds a lot of risk for the business the funding becomes tough. The business can be funded through various means and ways in India. Here, is a guide that can make you startup grow by leaps and bounds through the proper source of funding.
9 SOURCES TO FUND YOUR STARTUP
Bootstrapping or in layman terms is the self-funding of your startup financing when you are an immature entrepreneur and don’t get any support from any bank or any other financial source unless you hold a strong plan to execute the business along with a sure guarantee of growth of the business. Also, one of the ways to start funding the business is that the source of the funding is flexible as your borrowing from your friends and family. You can borrow the money at low-interest rates and also can avail the benefit of not being answerable to anyone. At the maturity stage of the business, this is considered as an edge in front of the investors as they consider it as a good point for the startups that have low requirements. But, not advisable to startups who are in need have vigorous funding since day 1 for their operations
- CROWD FUNDING
One of the developing sources of finance for your startup is to avail the finance from the public. The process works in an interactive way wherein an entrepreneur pitches his business idea in front of the layman on a platform where he orients them about his business, the process and how revenues would be generated along with the seed capital amount and where would the amount be invested into. The crowd then reverts the pitch in the form of donation or form of pre-buying orders for the entrepreneur. This type of sourcing not only fulfills the need of the entrepreneur but also generates an audience for him who are willing to fund his idea as well as support it giving a boost for the business in the initial years. This also grabs the attention of the venture capitalists few years down the timeline and would be interested in funding your business by looking at the success of your campaign and your risk.
- VENTURE CAPITALS
If you are a wager and willing to make higher bets for your startup then this is the place for you to make the wage. Venture capitals are also known as professionally managed funds which are invested into the companies holding magnanimous potential. They are the people who would invest in your business for private equity against it. They also come with secondary incentives such as providing of expertise, mentor-ship and a guide for the company for the stability. This brings into the picture that if your business is in the early growth stage of a startup and is generating revenues then this is the option for you. Also, not to forget they take an exit when a startup goes for IPO or acquisition. Lastly, they specifically invest into the startups that have a product life cycle of 3-5 as they are looking at the recovery of the investment in 5 years.
- ANGEL INVESTORS
This type of funding is appropriate in the early stages of your startup and can cause a change in the revenue of your business at early stages. Angel investors are basically known as the individuals who have got ample amount of financial resources to invest in your potential startup against the private equity of the business. They basically pursue your team; timing and market potential say one of the India’s top 10 angel investors. They also come with a preference that if you’re promising them hefty returns on their investment they invest more in your business. But, the only issue comes when funding from angel investors is made a small amount can be accumulated as compared to the venture capitalists who invest more in the early stages of business. Thus, we can also interpret that angel investor has shortcomings too when it comes to funding your startup and make it grow. Some of the prominent angel investors in India are Indian Angel Network, Mumbai Angels etc.
- INCUBATORS & ACCELERATORS
Incubators and accelerators are one of the other options when you’re looking for an initial startup investment. They are basically the programs for a short span of time that help the business to grow and nurture also with to provide them with other mentors and connections for the benefit. Incubators are basically the programs where they provide you with an in-house space and equipment with their funding to run your startup against stakes going as high as up to 20%. On the other hand, accelerators are the programs with a short span of time where you are assigned a small seed capital along with a return of a large mentor network against the stakes of 2-10% of your business. Thus, incubators are like your parents who nurture you and the accelerators are the programs which give you huge opportunities. India holds some popular names of Amity Innovation Incubator & Angel Prime.
- GOVERNMENT PROGRAMS
The government is also providing incentives for the startups and to promote them. The government of India passed the startup fund in the union budget of 2014-15 which is valued at 10,000 crores for Indian startups. There are more programs launched by the government to take the benefit such as the Bank of Ideas and Innovations by the program that will support the new product ideas. There are also government programs wherein you need no collateral security against the loan you borrow for your startup under the name of Credit Guarantee Fund Trust for Micro and Small Enterprises. The government also started with MUDRA with an amount of 20,000 crores to sanction loans to startup once you clear the criteria. There are also institutions who take lower interest rates as compared to the market. The awareness is a parameter if you are applying for loan through the government programs
- HIGH NET-WORTH INDIVIDUALS
Lastly, our final source of funding is the High Net-worth individuals who are individuals with ample amount of financial resources for your startup. These individuals are having their existing business and are looking for opportunities to invest into your business with their resources for the time span of 1-3. After this time span, they expect the amount of the investment to be twice or thrice during this period. They mainly invest in those businesses which are having the highest calibre level to sustain in the market and generate good revenue streams in short span of time. The first advantage of this type of funding that you can design a custom investment based on the funds you need which give you an edge. Lastly, the high net-worth individuals charge you lower fees.
- BANK LOANS
This might probably be the first option when you have an idea of your own startup. Banks offer loans to the entrepreneurs who are eligible and capable of carrying out a sustainable and stable business project. For the sanction of the loan, the bank takes into consideration the business model, the valuation of various inventories and the project report along with other documentation. But, now the process is hassle free and without any collateral. Under all the banks there are 7-8 different types of loans for the SME Business. But the only thing that needs to be taken care of is the timely repayment of the amount. The funding done by the bank has got benefits such as the profit or loss remains with you along with the proper procedure and framework of the banks. Also, they are available every and charge less as compared to venture capitals i.e. 13-17%.
So, basically, the idea should be firm, stable and have potential to get you the desired funding you want!