“My body wants more sleep but my pocket needs more money”. This is something that every single entrepreneur involved in a start-up can relate to. A start-up is like a new born, you want to provide it with every best thing possible but to achieve this feat you’ll need money. A LOT OF IT. According to a list in the Forbes magazine, majority of start-ups fail because of lack of money, notwithstanding, the start-up culture in India is on a rise and there are a lot of people who are willing to part with their bucks is your idea is promising. To make sure that you don’t follow the suit and that your baby will become a million-dollar baby, we have come up with a list of avenues from which a start-up can obtain funding.
OBTAINING A LOAN FROM THE GOVERNMENT
With the thrust that the government is providing to the make in India to make it a success, it is the best possible time for an individual to pitch their idea and secure funding form a bank. The government is committed to back the SMEs and have loans at special rates for these forms of business. Indian Impact Investor Council (IIIC), a self-regulatory body to encourage impact investing in the country, is also setup by the government. This being said, you still need to provide a collateral against the loan which for many entrepreneurs is not feasible.
Crowd funding websites such as Kickstarter have backed many start-ups with its funding option. The crowd funding platforms have now specialised themselves into a particular field such as social financing where the funds are invested into projects that are socially beneficial for the society as a whole. Other forms of crowd funding against equity or interest on investment.
Angel investors or “Angels” are individuals with the required amounts of money who are looking for sound business propositions to invest in. They are not an organisation and often takes decision on their gut-feelings. If the idea seems amicable to them, they can invest money in no time as the money invested is their own. . They are retired businessmen and hence can also provide you with the much needed contacts that a start-up needs. But they mostly invest small amounts of money which is required for a business in its early stages.
Venture capitalists are the organisations whose business is to look for new and promising business to invest in. They usually invest against equity in the business and hence also exercise control in decision making to some extent. They invest the money that other capitalist invested in their organisation i.e. they don’t invest their own money. The decision to invest in business takes time as they follow steps that are predetermined in an organisation that invests on such scale.
The above mentioned sources are the most popular ways of securing funding but they are not the only one. Some other choices of funding may include
Self-financing or “Bootstrapping” your start-up means investing your own savings into the business. It is a great source of funding to get your business get off the ground. There is no liquidation of equity and the decision making power is still yours. It is extremely beneficial for business that require less amounts of cash in its early stage.
FRIENDS AND FAMILIES
Asking friends and families for funds is another way to get your business started. Not only can you ask for money, but you can also ask for expertise in fields they are more acquainted with. This helps in bringing in specialization in your business at early stages.
ACCELERATORS AND INCUBATORS
Accelerators are programs that invest certain amounts of seed funds into a start-up along with a wide array of networks of mentors that help them throughout their period at the program. They run the program for a specific period of time against equity that is 2-10% normally.
Incubator don’t invest money in your start-up. Instead, they provide you with the required space and equipment that your start-up may require to get started till it get on its own feet. They usually charge around 15-20% of the equity.
You should be very careful when selecting the mode of funding for your start-up. Sometimes institutions offering less money and more independence in decision making are better off then institutions that offers more money and tie your hands when it comes to decision making.
“Money is a handmaiden, if thou knowest how to use it; a mistress, if thou knowest not”