According to a current research, more than 94% of new businesses fail during first year of operation. Lack of funding turns to be one of the common reasons. Money is the backbone of any business. The long painstaking yet interesting journey from the idea to revenue generating business requires a fuel named capital. That’s why, at almost every stage of the business, entrepreneurs find themselves thinking – How do I finance my startup?
Now, when would you require funding depends primarily on the nature and type of the business. But once you have discovered the need for fund raising, beneath are some of the different sources of finance available.
Here is a comprehensive guide that lists 6 funding options for startups that will help you raise capital for your business. Some of these funding options are for Indian business, moreover, similar alternatives are available in different countries.
1) Bootstrapping your startup business:
Self-funding, also referred to as bootstrapping, is a great way of startup financing, specially when you are just commencing your business. First-time entrepreneurs often have trouble getting funding 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 enormous benefits. When you have your own money, you are tied to business. On a later stage, investors consider this as a good point. But this is suitable only if the initial requirement is small. Some businesses require money right from the beginning and for such businesses, bootstrapping may not be a nice option.
2) Crowdfunding As A Funding Option:
Crowdfunding is one of the latest ways of funding a startup that has been become well known lately. It’s like taking a loan, pre-order, 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.
Why you should consider Crowdfunding as a funding option for your business:
The best thing about crowd funding is that it can also generate interest and hence helps in marketing the product alongside financing. It is also a boon if you are not sue if there will be any demand for the product you are working on. This process can cut out professional investors and brokers by putting funding in the hands of common people. It also might attract venture-capital investment down the line if a company has a particularly successful campaign.
Also keep in mind that crowdfunding is a competitive place to earn funding, so unless your business is absolutely rock solid and can gain the attention of the average consumers through just a description and some images online, you may not find crowdfunding to work for you in the end.
Some of the popular crowdfunding sites in India are Indiegogo, Wishberry, Ketto, Fundlined and Catapooolt.
In US, Kickstarter, RocketHub, Dreamfunded, Onevest and GoFundMe are popular crowdfunding platforms.
3) Get Angel Investment In Your Startup:
Angel investors are individuals with excess cash and a great interest to invest in upcoming startups. They also work in groups of networks to collectively screen the proposals before investing. They can equally dish out mentoring or advice with capital.
Angel investors have assisted to start up many prominent companies, including Google, Yahoo and Alibaba. This another form of investing generally occurs in a company’s early stages of growth, with investors expecting a upto 30% equity. They prefer to take more risks in investment for higher returns.
Angel Investment as a funding option has its shortcomings too. Angel investors invest lesser amounts than venture capitalists (covered in next point).
Here is a list of popular Angel Investors in India – Indian Angel Network, Mumbai Angels, Hyderabad Angels.
4) Get Funding From Business Incubators & Accelerators:
The beginning 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.
These programs actually run for 4-8 months and need time commitment from the business owners. You will also be able to make good connections with mentors, investors and other fellow startups using this platform.
In US, companies like Dropbox and Airbnb started with an accelerator – Y Combinator. Here is a list of top 10 incubators & accelerators in US.
In India, popular names are Amity Innovation Incubator, AngelPrime, CIIE, IAN Business Incubator, Villgro, Startup Village and TLabs.
Popular business Casoftware – ProfitBooks is also a part of vWashington based accelerator Village Capital.
5) Raise Funds By Winning Contests:
The rise in the number of contests has really aided to maximize the opportunities for fund raising. It inspires entrepreneurs with business ideas to set up their own businesses. In such competitions, you either have to build a product or prepare a business plan. Winning these competitions can also get you some media coverage. We, at ProfitBooks benefitted a lot when we were regional finalists in Microsoft BizSparks in 2013 and won Hot100 Startup Award in 2014.
You have to make your project stand out in order to increase your chances of success in these contests. You can either present your idea in person or pitch it through a business plan. It should be comprehensive enough to make anyone believe that your idea is worth investing in.
Some of the popular startups contests in India are NASSCOM’s 10000 startups, Microsoft BizSparks, Conquest, NextBigIdea Contest, and Lets Ignite. Check out the latest startup programs & contests in your area.