A majority of businesses face failure during their first year of establishment. The prime reason behind this turns out to be a lack of funding. While start-up business loans are an option, acquiring funds is one of the biggest challenges for entrepreneurs. Funding and fundraising both act as fundamental support systems needed for the growth of a start-up.
The nature and type of a particular start-up determine when funding would be required. Once the need for funding is realised, one can opt for any of the below mentioned creative ways to acquire funds for a start-up.
This is one of the newest ways of start-up funding. In simple words, it refers to acquiring startup business loans or contributions from multiple persons simultaneously. A detailed description of the start-up business is posted on a crowdfunding platform by an entrepreneur. The description includes business goals, profit-generating plans, amount and purpose of funding needed. Then the ones interested in financing can come forward to do so. Funding is done through online pledges by the interested parties.
Apart from generating funds for a start-up, unlike a regular business loan, crowd funding also generates interest, thus helping to market the product.
Bootstrapping a start-up enterprise, in simpler terms, refers to self-funding the start-up. New entrepreneurs with the best business ideas need to prove that their business plan has the potential to succeed. If they are unable to show some traction and potential, they face a challenge funding their start-up at the beginning.
Entrepreneurs can opt to invest from their personal savings or convince relatives to contribute. Through this method, raising funds would prove to be an easy option due to the involvement of minimal formalities or compliances, unlike start-up business loans. It also comes with lesser raising costs.
Bootstrapping can ideally be considered the first funding option to raise capital for start-up businesses. When entrepreneurs invest their personal money into the start-ups, they are attached to the business as a whole.
Angel investor refers to individuals who possess surplus cash and a keen investing interest in the potential and emerging start-ups. Apart from offering capital to start-up businesses, they act as business mentors as well. They collectively scrutinize the investing proposals by working in network groups.
Angel investing usually takes place during the initial growth stages of a company. Angel investors can expect equity up to 30%, and they prefer taking risks for such high returns. They bridge the gap between venture capitalists and small-scale financing.
Angel investments possess lesser risk than debt financing as it is not necessary to repay the invested capital in case of a start-up failure.
Venture capitals are funds, which are professionally managed and used for investing in high potential start-up businesses. Venture capitalists usually invest in a start-up against equity and withdraw when there is an acquisition.
Apart from investing, venture capitalists provide expert opinion and mentoring to the organisations. They evaluate a start-up on suitability and sustainability and express their views regarding where the start-up is headed.
To receive funding through venture capital, the start-ups must have their investment thesis aligned with the venture capital fund. Every venture capital fund’s investment thesis includes all the preferred sectors, start-up stages, and funding amount. Venture capitalists demand start-up equity for the investments that they make.
Incubators and accelerators
Start-up incubators and accelerators refer to organisations, which are set-up with the prime goal of supporting entrepreneurs and helping start-ups achieve growth and success. These can support a start-up at any stage of development. Accelerators might have a physical address for resources and events, whereas incubators offer office spaces to start-ups for a given time period. Apart from these value-added services, they also make equity or grant investments.
In addition to the above creative funding ways and the regular start-up business loans, entrepreneurs can make the most of the various offers from financial institutions.
For instance, financial institutions like Bajaj Finserv provide pre-approved offers, which are the help in accelerating and simplifying this lending process. These offers are provided or various financial products like instant business loan, credit cards and personal loans. You can check your pre-approved offer by providing certain details, such as your name and contact number.
Funding turns out to be an extremely vital aspect required to meet business needs. Apart from start-up business loans, the above listed options can also fulfil the monetary requirements of such a firm.