How To
How To Raise Capital For Your Startup
Most of us often think a revolutionary idea is all you need to set up a business. Yes, a great idea is definitely the heart of your business, but funds are its backbone. Most startups fail within months after their inception due to lack of proper funds. Raising capital to build your business is a huge challenge, especially if you are a first timer. We are here to help you with just that. Keep reading to find out some ways in which you can fund your business.
How to raise capital for your startup
1) Self funding
This is the most obvious way to fund your business. If you are a first time entrepreneur, you may have a tough time trying to find potential investors. Therefore, you can consider funding your business from your own savings or ask your friends and family to contribute. This process of funding your own business is called bootstrapping. Bootstrapping should always be considered as the first option for funding your business. However, this is suitable only if the initial requirement is small.
2) Crowdfunding
Crowdfunding is a millennial way to fund your startup. How does crowdfunding work? An aspiring entrepreneur puts up a complete description of his/her business, like the business plan, the vision, what he aims to achieve and how much funding he needs, on a crowdfunding platform. Users of this platform will read about the business and pledge an amount of their choice, if they like the idea. Here, anyone can contribute to your business. Apart from providing financial help, a crowdfunding platform can also help in marketing your products or services. Kickstarter, Patreon, GoFundMe, RocketHub and CircleUp are some of the most popular crowdfunding platforms in the world. In India, Faircent, Ketto and Wishberry are some of the most famous ones.
3) Venture capitalists
Venture capitalists (VCs) are professionals who invest in startups and companies which have huge potential. VCs usually invest in a business against equity, which is the difference between the value of assets and the value of liabilities. They exit the business when there is an acquisition or an IPO (Initial Public Offering.) Venture capitalists are not easy to impress, especially if you are new to entrepreneurship. They even come with their fair share of disadvantages. Though a VC invests in your business, they often expect a recovery within 3 to 5 years. This is suitable for businesses which have crossed the startup stage and are already bringing in revenue. Some popular venture capitalists in India are Blume Ventures and Nexus Venture Partners. Index Ventures and Accel Ventures are venture capitalists which made their mark across the globe.
4) Angel investors
Angel investors are people who have a huge amount of cash and a keen interest to invest in a potential business. Sometimes, a group of investors come together to scrutinize and invest in a potential business. Apart from finance, angel investors can also provide advice as mentors. They are even willing to take higher risks for better returns. Angel investors are the people responsible for the establishment of several big names in the world, including Google and Alibaba. One drawback of angel investors is, they give far less capital compared to venture capitalists.
5) Participate in competitions
In recent times, several competitions are being held, where the winner gets capital for his/her business. All you have to do is present your business idea or module to a jury and if you win, you get the required capital to start your business. This, however, is not easy as the competition is going to be very high and your idea has to really stand out from the rest to be able to attract investors.
6) Get help from business incubators and accelerators
Business incubators and accelerators have become immensely popular recently and they are found in almost every major city across the globe. Business incubators produce several successful entrepreneurs every year. They usually have a program for 4-12 months, during which, they nurture, train, evaluate and fund your business idea. Accelerators, on the other hand, help an already established business grow or take a huge leap. StartupVillage, T-Hub, TechnoPark TBI and GSF Accelerator are some examples of business incubators and accelerators.
7) Bank loans
A bank is probably the most convenient place to get funds for your business. Almost every bank in India provides business loans against some sort of security. Bank loans for businesses are of two types—working capital loans and funding. Working capital loans are designed to traverse one full cycle of revenue generation. Funding, on the other hand, is the process of sharing your business plan and your business valuation to get the required funds.
An added advantage with bank loans is, you will not have the pressure of an investor depending on your business.
8) Government schemes
Governments these days are keen on encouraging entrepreneurs. There are several plans and schemes which are made available by the Government to fund your business. In India, the Pradhan Mantri Mudra Yojana and the Startup India Scheme are some initiatives. The Startup India Scheme, which was started in 2016, is known to have created thousands of entrepreneurs in India.
These are some of the several ways in which you can fund your business. Before approaching any investor, it is suggested you do full fledged research about each of these options and also get an idea about various market scenarios. After that, choose a plan which is suitable for you and your business type. If you have a professional network, which we recommend you do, discuss the various options with them and then take a decision.
Do you know of any other ways to fund a startup? Comment below and let us know.
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