Recent studies have revealed that almost 94 percent of new businesses fail to go past their first year of operation. Lack of funding can be a serious threat for new businesses and is perhaps the most common one. Businesses need capital to function at every stage and that is why it is one of the most crucial aspects that start-ups cannot afford to oversee. So how do you raise funds for your new start-up? This article will be aimed at providing you with the proper path to gather funds for your business.
1. Bootstrapping: Bootstrapping or self-funding is perhaps the most common form of funding individuals can adopt for their business. This is especially true for a start-up who have not gained enough traction to present their ideas to influential investors. As a business owner, you will need to invest a portion of your own savings to start your business. You can also approach less-formal lenders like family and friends. In most situations, these funds will come with no or very little interest rates.
This should be considered the first source of funding for new businesses. Since you would be investing your own money, burdens and obligations are somewhat eliminated. However, this is only feasible when the scale of your business is small.
One of the prime examples of a successful bootstrapping venture can be seen with the Indian promotional brand GrabOn. Established back in 2013 in Hyderabad, GrabOn slowly became the go-to destination for online shoppers across the country across multiple verticals like coupons and deals, gift cards, and price comparisons. According to the spokesperson for GrabOn, the business became profitable within just 15 months of its operation.
2. Crowdfunding: Crowdfunding is one of the newest ways of funding that businesses and start-ups can leverage. With crowdfunding getting a lot of attention since it allows a large-scale investment from individual consumers. It is much like pre-ordering your next iPhone.
In essence, business owners will list out their business/products on crowdfunding platforms and put in all the relevant details, the goals they wish to achieve and how much funding will they need to start operations. The consumers can invest if they like the proposal. Since anyone can contribute to crowdfunding, coming up with a compelling proposal that people will invest in is critical.
A great example of crowdfunding can be seen with HoloSuit. Currently valued at $50 million, HoloSuit is a full-body motion capture suit that is easy to use, wireless, and most importantly, affordable. Founded in 2016, HoloSuit saw one of the most successful crowdfunding campaigns in the country.
3. Angel investments: Angel investors are individual investors who have excess funds and have a keen interest in investment in innovative start-ups. Apart from investments, these angel investors would be able to provide valuable mentoring and advice also.
Huge multinationals, too, like Google, Alibaba, etc have been helped by angel investors. This is usually seen during the initial stages of funding for a business and these investors tend to take higher risks in the hopes of bigger returns and can expect up to 30 percent equity.
4. Bank loans: This is perhaps the first source of funding many think of before starting their business. There are generally two types of funding that can be availed from financial institutions like banks. These include working capital loans and funding. The working capital loan is the fund that is required to complete one full cycle of revenue-generating operations.
The limit is generally determined by the debtors and hypothecating stocks. Funding on the other hand requires a lot of hoops to be jumped through like sharing business plans and valuation details before the loan is sanctioned by the bank. There are several Indian banks that offer SME finance through various programs.
5. Government programs: Start-ups can leverage several government initiatives to secure their funding. Initiatives like MUDRA or the Pradhan Mantri Micro Units Development and Refinance Agency Limited over several benefits to new businesses blooming in the country.
Business owners will need to submit business plans in order to get their funding sanctioned which will help them to avail a number of corporate benefits. There are also several other initiatives run by the state government as well which business owners can look out for. If your business is eligible for the funding, government programs stand to be one of the best sources of funding.
6. Winning contests: There are several prolific contests like NASSCOM’s 10000 startups, Conquest, Microsoft BizSparks, Let’s Ignite etc that start-ups can participate in to gain both media coverage and funding as well. Contests offer tremendous opportunities to raise funds by presenting your product or business idea. Make sure that your product or business idea stands out if you want to improve your chances of winning these contests.
A great example of excelling in such contests can be seen with ProfitBooks. One of the leading accounting software for businesses, the organization was able to make headlines after winning the Hot 100 Start-up Award in 2014, prior to which they were also regional finalists in the Microsoft BizSparks in 2013. This has helped the organization to become one of the most well-known brands in the accounting industry.
7. Venture Capital: This is where you make the big bets. These are professionally managed funds that are invested in companies that have a huge potential. The investment is usually done against equity and exit only after an acquisition or IPO. Venture capitals help to provide expertise and test out if the business will be sustainable and scalable.
This is very much suited for businesses that have moved beyond the ranks of start-ups and have already started to churn profits. However, venture capitals have a very short leash and often look to recover their investments in three to five years. Anything more than that the investors would start to lose interest.
Few examples of companies that leveraged venture capitals include Uber, Flipkart, etc who were able to raise huge funding owning to their unique business proposition.
If you are looking to start a new business, chances are you would be looking to raise funds externally. Bootstrapping can help in the first few stages, however, it is not a long-term option. Starting a new business can be difficult, especially, if there is no guide to help you out. SmartSchool Education is your number one choice when starting a new business.
With SmartSchool Education’s franchise business model, you too can be a part of the dynamic industry. From training to workshops and steps on how to secure funds, SmartSchool Education is going to prepare you for what you would be facing in the business world. So what are you waiting for? Contact SmartSchool Education today to start your very own business and utilize the above-mentioned steps to raise funds for your business.
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