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Funding Topics: Boot-Strapping, Micro-Loans, Crowd-Funding, Govt (ie, SBA), Incubators & Accelerators, Angels, VCs, Banks, Pre-Sales.
Most business startups usually begin with high hopes & confidence. However, a few circumstances can either make or mar any business startup. A comprehensive research conducted by experts has shown that business startups within the first year often give up due to a myriad of reasons.
Cash is King. The most important requirement for any business to prosper is running short of $$$. This is because $$$ is the basic ingredient for any business to thrive. Without adequate finance, startups tend to crumble, and this obstacle often causes startup founders to seek financial backing for their startups.
Getting Funding. You must conduct the right research for your startup to find out who your market is to obtain the needed funding for your startup. Here are a few tips you can try, to get the required funding for your startup.
- Boot-Strapping. In order to succeed with your startup, you must ensure that you have some “saved” funds you can easily access or funds you can obtain from friends or family. Friends & family are usually flexible when it comes to paying back your loan – much more than other external sources. So, if you approach the right friend or family member that supports your idea, you can get some of – if not all – of the funds you require to start up your business.
Pros: a) Funds can easily be accessed with little or no bureaucratic obstacles, b) Flexible interest rates
Cons: Boot-Strapping is a challenge to a normal life-style. You have to plan how to survive thru “lean” times – before you hit the break-even point.
- Micro-Loans 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 use Micro-Loans institutions as a reprieve, whenever they are out of favor by conventional Banks.
- Crowd-Funding. Modern technology has made it easier for people to share their need on an inter-active social platform. Crowd-Funding are set up for Founders to pitch their business ideas to a community of investors willing to support their ideas or cause.
How it Works. A Founder makes a “pitch” on a Crowd-Funding platform, sharing the product or service and it’s potential for growth. If the idea is bought by the Crowd on the platform, they’ll make a pledge to support his business model publicly and donate funds respectively.
Pros: CF essentially creates public interest for your business, thus getting free marketing and providing finance for your business at the same time. CF eliminates the complexity in placing your business in the hands of an Investor or a Broker (to make you broker) and give power to nerds or other cool characters on the CF platform
Cons: a) The heavy competition of CF platforms can prove to be difficult if someone or people are pitching a similar idea as yours. b) If your pitch isn’t as strong as your competition, then there is a probability that your idea will be over-looked or rejected.
- Non-Banking Financial Corps (NBFCs) give out loans to individuals who seek loans, without necessarily imposing any legality like conventional Bnks & Credit Repair services do.
- Government Programs 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 analyzed and approved, you will be provided with the $$$ to startup.
Pros: Funding from govt is usually substantial in size, thus providing you with surplus capital to manage your startup. (Use it Wisely)
Cons: The process of scrutiny, approval & eventual release of funds may take a lot of time due to government bureaucracy
- Business Incubators & Accelerators. Business Incubators nurture Startups while accelerators fast-track.
Pros: a) Founders receive mentorship from these investors, b) Connections can be made with other startups
Cons: During its 4-8 month lifespan, if commitment by BI&A’s is lacking, the startup might spiral in a downward direction
- Angel Investment. Angel Investors (the other AI) are basically people with a huge amount of $$$ and are willing to invest it on good business ideas. They sometimes come together in groups to scrutinize business proposals, in order to select the perfect candidate to invest in.
Pros: a) Angel Investors offer mentorship alongside capital for startups. b) They are willing to take risks on business ideas as they anticipate heavy return on investment from your startup
Cons: Angel Investors provide less $$$ ideas compared to Venture Capitalists.
- Venture Capital funds are managed by professionals that have a keen eye for seeking out companies with great prospects. Their approach involves investing in a proven business. Once there is an IPO or acquisition of the business they are partnered with, they then pull out and seek other investments.
Pros: a) VCs monitor the progress of a company they have invested in, thus ensuring the sustainability & growth of their investment. b) The mentorship that VCs bring to the table can also sustain a business or company effectively. c) Companies with astronomical growth rates such as Uber, Flipkart have a pre-designed Exit strategy that enables them to reap huge profits that they can, in turn, re-invest in the growth of their company.
Cons: a) VCs will remain loyal to your business till they have recovered their capital & profits. This usually occurs during a 3-5 year timeframe. b) You tend to lose control of your business since you’re giving up a large part of it to the VCs. c) VCs seek growing companies with proven levels of stability & identifiable workforce.
- Bank Loans: Bankers provide financial backing on Loans to individuals who approach them with a solid business plan. Your Business Plan must be well structured to convey your business model & profit forecast. The $$$ comes in two forms – Working capital & Funding.
Pros: a) Large capital can be obtained by entrepreneurs, b) Capital provided can fast-track income generation
Cons: High risk of Collateral loss, since it is an important requirement for loan grants
- Product Pre-Sale: An amazing way of raising funds for your business is thru 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 use this method.
Conclusion: Do you know any other Options to raise $$$ for your Startup?
from Finance Extra 22 Feb 18 enhanced by Peter/CXO Wiz4.biz