Starting off with a new business? Surely you have checked off your checklist the name of your company, the logo, business model brainstorming and innovations. You are probably closer to taking off your business but that is just one step closer to creating your business but we know very well, that’s not how things work for real. In the real world, it is the implementation of this ideation where it gets real. The tool absolutely necessary for this is startup funding and startup financing and this is where the things start getting real.
You face a lot of challenges, a lot of impediments while obtaining startup funding. This is essentially the reason why many entrepreneurs quit the business or are forced to shut down.
Clearly, startup funding is one of the most essential components for a new business, not just when they are beginning afresh but also in the later stages when they need funds for the smooth and seamless functioning of their business on a day-to-day regular basis.
Where Can You Get Startup Funding?
“Don’t put all your eggs in one basket” is as relevant as it gets for a company to look for its startup funding options. Business have numerous costs to keep their themselves up and running. What’s important is that the entrepreneur understands how essential it is to have a diversified stream of flow of sources of their startup financing.
The world today is full of opportunities. Hence, the markets today are brimming with a plethora of opportunities and options as well, wherein it is not a difficult task to get a hold of numerous capital options to diversify one’s startup funding. They key is to choose precisely, which capital options go with to meet your specific your startup funding requirements.
Many business owners begin their businesses with their personal savings as the startup funding. However, this cannot be sustained in the long run and is most likely to affect the business adversely. Many of them eventually go for the traditional funding means like bank loans or venture. These are excellent options to go with. However, given the variety of startup financing alternatives available, the startup funding options are endless.
Here’s a comprehensive guide on the startup funding options available to the entrepreneurs.
Kinds of startup funding
Seed startup funding: Seed funding is essentially the funding that startups get at the nascent stage for the business. The amount can be very low or very high, depending upon the confidence that an investor has in your idea. It is also proportionate to the kind of startup financing your idea and model needs to take off. However, seed start up funding is one of the riskiest funding your business could receive. Why is it, you must think.
In seed investments, the investors are putting a lot of their money io your idea in one go. If the business takes off, their money could even grow exponentially in the long run. However, if it fails, the funds could all be wiped out in one single go. If your startup survives the initial waves and manages to survive for say a couple of years or more, your business becomes eligible to get series A start up funding.
Series A: Congratulations, your business have made it longer than two years, making yoyu eligible for more start up funding options. Now that you have given a certain share of equity to your investors, you need to fulfill the commitment while focusing on seamless operation of your business. You can reach out to certain angel investors or venture capitalists for tis additional startup funding.
The amount you get through these startup financing alternatives is way more than what you could’e expected in the initial stage. You then have an increased company value and upon issuing new shares to the new investors, at the same percentage your original seed investors’ share value has increased. This situation is a win-win for all the parties involved. Then after a few more years, your business becomes eligible for series B funding, as explained next.
Series B: This kind of startup funding is available for startups when their operations have run successfully for over 4-5 years. Often, companies begin generating enough revenues by this stage that they don’t opt for additional funding post series A funding To funding amounting series A is usually somewhere in double digit values in millions.
What are some funding options for startups?
Family & Friends:
The initial stage of startups is when they receive seed funding as a form of start up funding. Often, business owners take the seed funding from their own family members of friends. One way to repay is that they give them a percentage of equity in turn for the funding they receive from their friends and family.
Another route startup owners often take is to repay the entire amount with a relevant interest amount over a period of time. Through this, the friends and family become your business partners until you have completely repaid their loan. It is imperative to keep it strictly professional and demonstrate to plan and growth along with any changes regularly to your seed funding providers.
Another effective way to generate funds for your startup is through crowdfunding which is very fast and effective to generate startup funding. You just have to offer your product/ offering to the crowd. They only want the returns promised to them within the specified time and they won’t ever bother you. Tis tactic f startup financing has come in very handy for the startups to generate funds.
Know More About – Rewards-Based Crowdfunding
P2P Personal Loan:
Also known as peer to peer persona loan, this is a non-traditional loan option that is an excellent source as a startup funding option. The startup owners have complete freedom to sue the products whenever and however they wish to. The basic model of P2P lending connects borrowers to lenders, displaying all their financial credentials like CIBIL score etc. to assess how reliable the other party is to help them invest their resources judiciously.
Home Equity Line of Credit (HELOC):
HELOC, is one of the many funding for startups which a cost-effective. An illustration might help understand this better. Every time you pay the mortgage for your home, its equity rises and so does its value. The equity you possess can be found by simply subtracting the remaining payments you need to make versus your house’s current value.
If you’re wondering how to raise funds or how to get Business Loans For Startups in India, you can get a loan against this equity value of your home. This provides a credit line that can be drawn entirely as per your needs and works the best for the entrepreneurs who are looking for funds in the long run and plan to obtain startup financing just once.
Rollover for Business Startups (ROBS):
ROBS is a startup funding option using which you can make use of your retirement funds by investing them into your business. If you’re worried about what option of raising funds for a startup may have the highest costs, with ROBS you can relax.
With this startup financing alternative, you don’t have to pay taxes or early withdrawal penalties, and there aren’t any interest payments or debts. This start up funding option is the best for those looking to use funds as their startup down-payment, to buy stock for new business or even to buy a franchise.
Microloans from Nonprofit Lenders:
As the name suggests, microloans work to deliver for the needs of small businesses implied, micro-loans are structured to cater to the needs of the small business. Then it is totally up to the entrepreneurs how to use it, to invest further, for innovations and R&D, growth and expansion, etc. no name a few ways. These loans work very well as seed start up funding.
Angel investors are individual investors in the private sector that provide startup funding at the seed stage. The name ‘angels’ comes from them being angels for providing a hefty sum and believing in your business idea and model enough to spare hefty sums of capital. They invest primarily in the seeding stage of a startup and have deep industry knowledge. To obtain start up funding from angel investors in India, networking comes in very handy.
Venture Capitals are the startup funding options that provide capital to businesses at different stages of tier business. These institutions look for how promising the prospects of a startup can be and only then proceed to the next level after thorough research.
They provide hefty sums to companies for their growth while supporting other aspects of the business as well. They have partial ownership and hence, a say in the way a business runs and functions and hence, they closely monitor the activities of the startups they invest into and even share their ideas and opinions. All they wish for is a sustainable development
In the union budge of 2016, the government of India came up with a new scheme called the startup business loan by India government India program. Since then, startups have been able to leverage to new ways of startup funding instead of just the traditional startup financing methods like venture capitals.
Under this, the government of India offers them various provisions like huge rebates on various costs like patent cost (80% rebate), tax rebates or exemptions altogether. Funds are granted as startup funding options and are granted under the fund of funds scheme by the Small Industries Development Bank of India (SIDBI).Other initiates like the Startup India Seed Fund scheme are also providing substantial sums in startup financing
Being one of the personal favorite of many entrepreneurs, bootstrapping is that startup funding option wherein the startup owners use their own funds instead of relying on any external party for the startup funding options.
This way, the business owners retain complete ownership of the business and have complete freedom to make decisions. However, in case the personal savings cannot sustain the requirements of the startup, it may even put it in jeopardy of bankruptcy. To sustain it, a side business alongside can always be helpful and may even end up adding to your startup funding. Also, to be able to depend on the personal savings, business owners must always be certain to have enough funds for the next few years (at least 3).