10 Funding Options To Raise Startup Capital For Your Business
[ Article was originally posted on https://www.finextra.com ]
A comprehensive research conducted by experts has shown that business startups within the first year often capitulate due to a myriad of reasons.
The salient requirement for any business to prosper is nothing short of capital. This is because capital is the basic ingredient for any business to thrive. Without adequate finance, business startups tend to crumble, and this malignant obstacle often causes infant business startup owners to seek financial backing for their startups.
After you must have conducted the right market data analysis research for your startup, obtaining the required funding for your business is entirely up to you.
Here are a few tips on the procedure you can adopt, in order to source for the required funding for your startup.
1. Bootstrapping your business
In order to succeed in your first time out in your business startup, you must ensure that you have some saved up funds you can easily access or funds you can obtain from friends or family.
The process of utilizing personal saved up funds or funding from friends and family is known as bootstrapping or self -funding.
Obtaining funding from family and friends is a unique way to kick off your startup. Friends and family are usually flexible when it comes to servicing your loan debt much more than other external sources.
So, if you approach the right friend or family member that supports your idea, you can get some, if not all the funds you require to start up your business.
- Funds can easily be accessed
- Little or no bureaucratic obstacles
- Flexible interest rates
- Bootstrapping doesn't work for large businesses; it only works for small-scale enterprises
Modern technology has made it easier for people to share their problems on an interactive social platform. Crowdfunding platforms are basically set up for individuals to pitch their business ideas or challenges to a community of investors or people willing to support their ideas or cause.
How it basically works is that an individual makes a business pitch on the crowdfunding platform, he shares his business model and it's potential for growth. If his idea is bought by the crowd funders on the platform, they'll make a pledge to support his business model publicly and donate funds respectively.
- Crowdfunding essentially creates public interest for your business, thus running some free marketing and providing finance for your business at the same time
- Crowdfunding eliminates the intricacies involved in placing your business in the hands of an investor or a broker and wields that power to simpletons on the crowdfunding platform
- Has a potential to attract venture-capital investment as the business progresses.
- The heavy competition inherent in crowdfunding platforms can prove to be difficult if someone or people are pitching the same business idea as yours.
- If your business pitch isn't as solid as your competition, then there is a probability that your business idea will be overlooked or rejected
3. Seek Angel Investment for Your Startup
You might be curious if there is such a thing as Angel investment or Angel investor? Yes, there is. Angel investors are basically people with a huge amount of capital and are willing to invest it on over the edge business ideas.
Angel investors sometimes come together in groups to scrutinize business proposals, in order to select the perfect candidate to invest in.
- Angel investors offer mentorship alongside capital for startups
- Angel investors are willing to take risks on business idea as they anticipate heavy return on investment from your startup
- Angel investors provide lower investment capital to business ideas compared to venture capitalists.
4. Seek Venture Capital for your Startup
Venture capitals funds are managed by professionals that have a keen eye for seeking out companies with great prospects.
Their modus operandi involves them investing in a solid business rather than an equity. Once there is an IPO or acquisition of the business they are partnered with, they then pull out and seek other investments.
-Venture Capitals effectively monitor the progress of a company they have invested in, thus ensuring the sustainability and growth of their investment.
- The mentorship and expertise venture capitals bring to the table can also sustain a business or company effectively
- Companies with astronomical growth rates such as Uber, Flipkart have a pre-designed exit strategy that enables them to reap huge profits that they can, in turn, re-invest in the growth of their company.
- Venture capitals will remain loyal to your business till they have recovered their capital and profits. This usually occurs during a slim three to five-year timeframe
- You tend to lose control of your business since you're giving up a large part of it to venture capital investors
- Venture capital investors seek bigger companies with proven levels of stability and identifiable workforce. This could prove to be an obstacle for you because business startups don't usually have this level of stability.
5. Seeking Funds from Business Incubators and Accelerators
Businesses that are just starting out can access funds provided by business incubators and accelerators.
The programs offered by them can be found in major cities across the globes.
Slight differences separate the terms "business incubators and accelerator".
Business incubators basically nurture business while accelerators fast-track businesses.
- Business owners receive mentorship from their investors
- Connections can be made with other startups
- During its 4-8 month lifespan, if commitment is lacking, the startup might spiral in a downward direction
6. Source Funds by winning contests
Another amazing way to source for funds is through engaging in competitions or contests that requires entrepreneurs to showcase or pitch their business module against other competitors vying for the same funding for their businesses.
As a contestant, you are required to present a comprehensive and detailed business plan if you are looking to win over investor confidence.
- In the process of participating in these contests, media coverage will be allotted to your startup, thus giving you the much-needed publicity for your business startup.
- Losing contests or competitions can demoralize the faint hearted, thus causing them to abandon their plans of starting up their business.
7. Raise Money through Bank Loan
Banking institutions provide financial backing on loans to individuals who approach them with a solid business plan. The business plan must be well structured to convey the modus operandi, profit forecast and estimated time of maturity.
The financial provision of banks is in two forms, they are working capital loan and funding.
Working Capital Loan
This loan is designed to traverse one full cycle of revenue generation. Stocks and debtors usually have leverage on the limit.
This process involves providing the business plan and concise information of the valuation, alongside the project report on which the loan was sanctioned.
- Large capital can be accessed by entrepreneurs
- Capital provided can fast-track the process of income generation
- High risk of Collateral loss, since it is an important requirement for loan grants
8. Acquire Loans from Microfinance Providers or NBFCs
Microfinance was set up to give access to capital to small-scale entrepreneurs that lack access to conventional banking capital or loans. Individuals with poor credit ratings see microfinance institutions as a respite whenever they are out of favor by conventional banks.
Non-Banking Financial Corporations (NBFCs) give out loans to individuals who seek loans, without necessarily imposing any legality like conventional banks and credit repair services do.
9. Government Programs that Offer Startup Capital
Government programs that offer startup capital are an excellent way to source funding for your business. You are required to submit a plan that can be accepted by the grant committee. Once your plan has been scrutinized and approved, you will be provided with the funds to start up your business.
- Funding from government is usually substantial in size, thus providing you with surplus capital to manage your startup
- The process of scrutiny, approval and eventual release of funds may take a lot of time due to government bureaucracy
10. Other Ways you can Raise Money for your Startup
Product Pre-Sale: An amazing way of raising funds for your business is through product pre-sale before launching your products officially. This builds consumer confidence in your brand and allows you to size up the demand for your product before its official launch.
Companies like Apple and Samsung adopt this procedure, allowing consumers to make pre-purchases before the official release of their products.
Selling Assets: Doing away with assets in your possession that have high financial value, can effectively serve as an immediate source of funding for your startup
Credit Cards: Business credit cards are an instant source of funding. New businesses that incur heavy expenditure can utilize credit cards as long as they fulfill the minimum payment requirement.
Employing the tactics in this guide can greatly increase the chance of survival of your startup. Bootstrapping among other funding sources outlined in this guide is the best way to kick off your business campaign.
However, to truly stay competitive in the market, you must always interchange your funding sources. This provides you with some level of flexibility and over-dependence on one source of funding.
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