Whenever the thought of starting up pops into our mind, there comes a question of ambiguity..i.e., Where to raise funds from? The answer for this million dollar question lies around us. The classroom learning sufficed in fathoming this mirage. The idea of crowdfunding have a paramount relevance in today’s world. Even, a startup garnered substantial sums of money just by proposing the model of Polygons — a transformable spoon. Isn’t it fascinating enough..?? Let’s have a look…
The different forms of startup capital are sated below:
- Bootstrapping : This deals basically with the self-funding. Initial days of startup may have problems in creating traction, thus they go for the money earned by themselves, friends, relatives family etc..
2. Crowdfunding: Crowdfunding platforms provide space for budding entrepreneurs to put up description details of the business. They will mention the business goals, profit making plans, the amount of investment required etc and consumers can fund the idea if interested. This mode of raising capital can generate interest and helps in marketing the product along with financing. It also has implications in eliminating professional investors and brokers by delivering funding to common people.eg: Kickstarter, Indiegogo, GoFundMe are some of the crowdfunding platforms.
3. Angel Investment: An angel investor is a person who provides capital for start-ups, typically with exchange of equity or convertible debts. This form of investment occurs in company’s early growth stages, with investors expectation of generally 30% equity. Different types of angel investors are classified as Corporate angels, Entrepreneurial angels, Enthusiastic, Micromanagement, Professional angels. Platforms to search for angels are AngelList, Let’sVenture etc.
“Investors should purchase stocks like they purchase groceries, not like they purchase perfumes” — Benjamin Graham, father of value investing paradigm
4. Funding from Incubators and Accelerators: These funding options are used at the early stages of the business. Incubators provides tools, training and networks to nurture the business and is analogous to a father-child relation. Accelerators are more or less similar but have a fundamental difference. Accelerators aid to take a giant leap/jump but Incubators assists/helps/nurtures a business to walk. Y Combinator is one of the most prominent accelerator which even funded for Dropbox and Airbnb. Indian setups are Amity Innovation Incubator, AngelPrime, Startup Village, TLabs etc.
5. Venture Capital: These are the professionally managed funds which are invested in companies with huge potential. Usually, investment is done against equity and exits with an acquisition or IPO. VC’s evaluate business for scalability and sustainability and provide expertise and mentor-ship. A venture capital is best suited for small business that are beyond startup phase and generating revenues. Companies like Flipkart, Uber with fast growth and an exit strategy can gain substantial amount of money to grow. Some of the renowned VC’s are: Venture Partners, Kalaari Capital, Sequoia capital.
6. Debt Financing: Basically, two types of financing done by banks — Working capital loan and Funding. The former is the loan needed to run one full cycle of revenue generating operations, and the limit is decided by debtors and hypothecating stocks. Funding involves the usual process of sharing the B-plan, valuation details and project report and subsequent sanction of loan. Almost every bank in India offers SME finance through various schemes and programs.
7. Government Programs: Govt. of India has launched 10,000 Crore Startup Fund in Union budget 2014–15 to improve startup ecosystem in India, ‘Bank of Ideas and Innovations’ to boost innovative product companies. Govt also backed ‘Pradhan Mantri Micro Units Development and Refinance Agency Limited (MUDRA) starts with an initial corpus of Rs.20,000 cr extending benefits to around 10 lakh SME’s.
“This is the beginning of a Big-bang for India..#startupindia” — Masayoshi Son, founder & CEO, Softbank
The funding stages for statups are well explained with the help of the video given below:
The sources of funds are enormous; we need to have an idea that can be scaled, then, networking does the rest. In short, we just need to keep our eyes and ears open into the world…
