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What are the methods which start-ups can use to raise money?

17, October 2016 | Prashant Mehta

Arecent research suggests that over 94% of new businesses fail in the early stages.

One of the key reasons is the lack of the ability to raise money.

Let us read on what are the methods which start-ups can use to raise money.


  1. Your own money

This is popularly called as “bootstrapping”

Advantages:

  • You can invest your money and if required borrow from friends and family

  • Easy to raise

  • Less formalities and documentation

  • Lesser interest cost

  • Full control on finances and operating expenses

  • Shows that you are serious and committed

  • Investors view this positively


  1. Crowd funding

Advantages:

  • It is similar to taking a loan, pre-order, contribution or investmentsfrom more than one person at the same time.

  • You have to upload a detailed business plan on the crowd fundingplatform/website

  • Consumers who are convinced on your business plan may either make onlinepledges, investments, donation or pre-buying your product/service

  • You can access a wide audience of potential investors

  • This will help you in marketing the product as well to the users of theplatform

  • This will also help you gauge the demand for your product/service

  • You reach common people and thereby cut out professional investors andbrokers

  • At a later stage, if your fund raising campaign is successful then youmay attract venture capital investors

  • Indiegogo,Wishberry, Ketto, Fundlined and Catapooolt are some of the popularwebsites which you can use.


  1. Angel investors


  • They are individuals or networks with a keen interest on investing instart-ups

  • As they will study your business proposal they will also be a valuablementor and guide in addition to giving you capital

  • They will expect you to share some of your equity(ownership stake) inyour company

  • They are high risk-high returns type of investors

  • Top global internet giants like Google and Alibaba are prime examples ofinitial help given by angel investors

  • Indian Angel Network, Mumbai Angels, Hyderabad Angels are some of the popular networks for you to tap.


  1. Venture capital investors


  • They invest in start-ups by taking equity stake(you have to give up somecontrol of your company) and divest when you launch a public issueor when you acquire another company

  • They can invest big money

  • They are professionally managed

  • Apart from money, they provide their expertise and guidance on an ongoingbasis

  • They usually have to three to five year investment time horizon.

  • They shortlist based on the track record of the founding team

  • Nexus Venture Partners, Helion Ventures, Kalaari Capital, Accel Partners,Blume Ventures, Canaan, Sequoia Capital and Bessemer Ventures aresome of the well-known venture capital investors for you to tap.


  1. Business incubators and accelerators


  • Incubators act as guiding posts nurturing as well as providing key training andtools and more importantly the network to your business. While thisis like helping you to get on your feet, Accelerators help you torun/take a giant leap.

  • All major Indian cities have incubators and accelerators and they have atrack record of assisting many start-ups

  • They run specific training programs which can last even up to 8 months.They are good meeting grounds with other startup founders toexchange thoughts and ideas

  • Startup village, CIIE , IAN business incubator are some of the well-knownincubators


  1. Contests

  • Popular startups contests in India are NASSCOM's 10000 startups, MicrosoftBiz Sparks, Conquest, Next Big Idea Contest, and Lets Ignite.

  • These evolve around preparing a business plan or building a product orservice. If you are to be innovative and different then your chancesof convincing others to invest are bright.


  1. Loans


  • Banks give working capital loans to start-ups. This is the loan requiredto run one complete cycle of revenue generating operations. Loanlimit is usually decided by pledging stocks and debtors.

  • Bank funding involves the process of sharing the business plan and thevaluation details, along with the project report, based on which theloan is sanctioned.

  • Even collateral free business loans are offered by most leading Indianbanks and there are many types of loan options available. Bankwebsites display this information. A visit to the bank will proveuseful.


  1. NBFCs(non-banking finance companies) and MFIs (micro finance institutions)


  • Micro finance companies offer finance to those borrowers who either do nothave access to bank loans OR those whose loan requirements are smalland/or those who have low credit ratings.

  • NBFCs also provide loans to the above segment of borrowers.

  • All details are available on “micro finance institutions network”website


  1. Stateand Central Government programs


  • Central government has launched Rs 10000 crores Startup Fund to helpstart-ups

  • To encourage innovation they have also launched 'Bank of Ideas andInnovations' program.

  • 'PradhanMantri Micro Units Development and Refinance Agency Limited (MUDRA)'has been launched with an initial corpus of Rs. 20,000 croreexpected to benefit around 10 lakhs SMEs

  • Under the MUDRA program many benefits are available which are listed onits website

  • States have also launched programs like Kerala State Self EntrepreneurDevelopment Mission (KSSEDM), Maharashtra Centre forEntrepreneurship Development, Rajasthan Startup Fest, etc. toencourage small and start-up businesses.

  • SIDBI– Small Industries Development Bank Of India also offers businessloans.

  • If you comply with the eligibility criteria, Government grants could bea very good funding option. Read about these programs

  • The startup India website contains important information which you canuse.


  1. Other innovative methods


  • Product Pre-sales: Sell your products before launch to raise money. Apple &Samsung follow this strategy. This increases your cash flow andhelps you gauge consumer demand.

  • Sell Assets: Do this to meet your short term funding needs. Once youcross the crisis, you can buy them back.

  • Business credit cards: Use these as a financing tool. Remember to pay beforedue date else interest cost will hit your finances.

Having read all the options you can chose the most optimal. Invest in goodaccounting software and keep an eagle's eye on your finances.Every rupee matters for a start-up.

It makes financial sense tobe responsible and use discretionto draw a line on the amount of money your business “reallyneeds”.

Author:

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