Don’t let your dreams fade away without funds
Know the best way to fund your startups
Money is the blood of Business without which it cannot exist,lety alone functioning. Entrepreneurs with great ideas and exceptional business models have failed at Entrepreneurship mainly because they don’t have the required financial support to build their company and leverage its operations. The only requirement to fund your Business is having a Strategic Plan.
Entrepreneurship doesn’t end with having a great idea and a desire to start a company but it includes dedication and persistence to make that dream come true. Close to 96% of starter entities disappear in the first two years owing to the most common of all reasons – lack of funds. Money is the bloodline of any business. The long painstaking yet exciting journey from the idea to a revenue generating business needs a fuel named capital. That’s why, at almost every stage of the business, entrepreneurs find themselves asking – How do I finance my startup?
3 common ways of raising funds for startup businesses
Product Pre-sale : Selling your products before they launch is an often-overlooked and highly effective way to raise the money needed for financing your business. Remember how Apple & Samsung start pre-orders of their products well ahead of the official launch? It is a great way to improve cash flow and prepare you for the consumer demand.
Selling Assets : This might sound like a tough step to take but it can help you meet your short term fund requirements. Once you overcome the crisis situation, you can again buy back the assets.
Credit Cards : Business credit cards are among the most readily available ways to finance a startup and can be a quick way to get instant money. If you are a new business and don’t have a tons of expenses, you can use a credit card and keep paying the minimum payment. Always keep in mind that the interest rates and costs on the cards can build very quickly, and carrying that debt can be detrimental to your Credit Scores.
These three ways could be the first set of options to cross your mind but this may not work for everyone.
HOW – 10 ways to fund your Startup
Raising money for Bank loans
Banks are the first place that entrepreneurs go for funding. Banks provide two kinds of financing for businesses – Working capital loan and Business funding.
Working Capital loan is the loan required to run one complete cycle of revenue generating operations, and the limit is usually decided by hypothecating stocks and debtors.
Business Funding from a bank would involve the usual process of sharing the business plan and the valuation details, along with the project report, based on which the loan will be sanctioned.
Getting business loans from microfinance companies and NBFCs
What if you don’t qualify for a bank loan? There is still an option. Microfinance is basically access of financial services to those who would not have access to conventional banking services. It is increasingly becoming popular for those whose requirements are limited and credit ratings not favored by banks. Similarly, NBFCs are Non Banking Financial Corporations are corporations that provide Banking services without meeting legal requirements as definition by a bank.
Getting financial assistance through Government support and subsidies.
The Government of India has launched 10,000 Crore Startup Fund in Union budget 2014-15 to improve startup ecosystem in India. In order to boost innovative product companies, Government has launched ‘Bank Of Ideas and Innovations’ program.
Government backed ‘Pradhan Mantri Micro Units Development and Refinance Agency Limited (MUDRA)‘ starts with an initial corpus of Rs. 20,000 crore to extend benefits to around 10 lakhs SMEs. You are supposed to submit your business plan and once approved, the loan gets sanctioned. You get a MUDRA Card, which is like a credit card, which you can use to purchase raw materials, other expenses etc. Shishu, Kishor and Tarun are three categories of loans available under the promising scheme.
Bootstrapping, is an effective way of startup financing, specially when you have just started your business. First-time entrepreneurs often have trouble getting funds without first showing some traction and a plan for potential success. You can invest from your own savings or can get your family and friends to contribute. This will be easy to raise due to less formalities/compliances, plus less costs of raising. In most situations, family and friends are flexible with the interest rate.
Self-funding or bootstrapping should be considered as a first funding option because of its advantages. When you have your own money, you are tied to business. This is suitable only if the initial requirement is small. Some businesses need money right from the day-1 and for such businesses, bootstrapping may not be a good option.
Crowdfunding is one of the newer ways of funding a startup that has been gaining lot of popularity lately. It’s like taking a loan, contribution or investments from more than one person at the same time.
This is how crowdfunding works – An entrepreneur will put up a detailed description of his business on a crowdfunding platform. He will mention the goals of his business, plans for making a profit, how much funding he needs and for what reasons, etc. and then consumers can read about the business and give money if they like the idea.Those giving money will make online pledges with the promise of pre-buying the product or giving a donation. Anyone can contribute money toward helping a business that they really believe in.
Getting Angel investments
Angel investors are individuals with surplus cash and a keen interest to invest in upcoming startups. They also work in groups of networks to collectively screen the proposals before investing. They can also offer mentoring or advice alongside capital.
Angel investors have helped to start up many prominent companies, including Google, Yahoo and Alibaba. This alternative form of investing generally occurs in a company’s early stages of growth, with investors expecting a up to 30% equity. They prefer to take more risks in investment for higher returns.
Raising funds from Venture Capitalists
This is where you make the big bets. Venture capitals are professionally managed funds who invest in companies that have huge potential. They usually invest in a business against equity and exit when there is an IPO or an acquisition. VCs provide expertise, mentorship and act as a litmus test of where the organisation is going, evaluating the business from the sustainability and scalability point of view.
A venture capital investment may be appropriate for small businesses that are beyond the startup phase and already generating revenues. Fast-growth companies like Flipkart, Uber, etc with an exit strategy already in place can gain up to tens of millions of dollars that can be used to invest, network and grow their company quickly.
Funding from Incubators and Accelerators
Early stage businesses can consider Incubator and Accelerator programs as a funding option. Found in almost every major city, these programs assist hundreds of startup businesses every year.
Though used interchangeably, there are few fundamental differences between the two terms. Incubators are like a parent to to a child, who nurture the business providing shelter tools and training and network to a business. Accelerators so more or less the same thing, but an incubator helps/assists/nurtures a business to walk, while accelerator helps to run/take a giant leap.
Road-shows are one of the few best ways a Business can take its brand and message directly to its target audience. The term is coined from the act of performances on the road by artists to take art to their audience. In business these are a series of meetings in multiple locations with potential investors and target groups.
Getting down on the road and catching up with your investors to fund your business will suit best if you have an already established business that is in need of additional funds for expansion. Investor roadshows are common among companies wanting to go IPO, because it tends to leverage the perceived value of the Stocks. The more excitement you build, the higher prices investors will be ready to pay.
And now that you know the ways to raise funds for business, you may wonder why many failed at managing their fund situation despite so many options?
Let us tell you why.
It is all because of the 3 main flaws in their Fundraising operation.
- Ineffective relationship building
- Incomplete Pitch Deck
- Inappropriate planning
Ineffective relationship building
Fundraising is a relationship-building process, and the mere idea of an organization seeking to have a social impact may be too abstract for investors to relate to. Instead, major investors intend to have a real relationship with a real CEO.
A CEO of an enterprise or an Entrepreneur is the chief strategic thinker, thought leader of the organization and thoughtful advocate for the organizational Vision. (S)He is the one person who lives and breathes the bigger picture on a daily basis and raises the larger questions:
- How to position the company to secure a great investment?
- What no longer works for the company’s overall growth?
- How to allocate resources better to raise more funds?
The solution to help CEOs embrace their role as chief fundraiser is a CEO Makeover at GEN . The famous Peter Drucker has quoted “leadership is doing. It isn’t just thinking great thoughts; it isn’t just charisma; it isn’t play-acting. It is doing.” The CEO Makeover is designed to enhance the CEO’s skill set and fine-tune their leadership strengths. With a GEN Makeover, You should be able to build a better rapport with your Investor groups and feel confident about funding your venture.
Register for a complimentary consultation session with our team of experts.
Incomplete Pitch Deck
it’s crucial that a startup absolutely nails its investor pitch deck and articulates a compelling and interesting story. An effective Pitch Deck is your only ally when it comes to raising funds. It is crucial for an Entrepreneur to present a well-thought Business Plan to the investors and it should be done in a way that no investor can refuse.
This is the compact version of entire Pitch Deck put in a compelling way to make your audience think.
“This is interesting. It has potential. These people know what they are doing, and I want to get in on the action.”
What is the problem that your startup or service is solving? What is the reason for you have come up with this particular Business idea?
How is your company solving this problem? What role does it play in the solution?
- Market Validation – Why now? What are the Favorable Market trends?
- Product/Services Offered
- Market Size and potential size of the opportunity
- Competitive advantage – What is your USP? What is the edge over your competitiors?
- Marketing plan/Goto market – Target Market/Niche
- Press/User testimonials
- Financials/Use of Funds
The underlying Magic of a Pitch Deck lies in its Business Model. Before coming up with a Business Model, an Entrepreneur needs to know
- What is a Business Plan Architecture
- How to design a Business model to raise capital
- How to arrive at the Business Plan Financials?
One little detail many Entrepreneurs tend to overlook is that – a Financial plan is not a Business Plan.
You may wonder “what the heck is that?” This confusion arises mainly because; both the terms have been used synonymously in the business world without understanding the fine line of difference that bifurcates them.
Usually, Entrepreneurs tend to make the mistake of taking the Financial plan to the investors in their Pitch deck and sometimes succeed in funding their business. But later on, they find it difficult to make ends meet and end up in a financial crisis. This happens because they don’t have a Strategic Business Plan to guide them through their operations and fund allocation.
You, as a GEN member, can apply here for a personalized Strategic Planning session for your venture.