According to a new study conducted, most operations fail in most businesses due to lack of money. It is a very common thing that money is fuel for any business, just like you cannot run your vehicle without fuel, in the same way, you cannot run a business without money. When starting any new business, each entrepreneur asks himself – how will I raise money for my startup business. Funding for your new business requires you to get your hands on it, it is not an easy task, but there are many more options available right now than in previous decades. Here we will discuss the 10 most common sources that might help you to raise money for your business and get your startup funded.
1. Personal Saving
The first step in the entrepreneurial journey for startups should be the investment made by themselves. Before investing in your business any investor will always try to know how much you have invested in your idea and giving money to your own startup is definitely a good sign for your business. It is entirely focused on using your savings to make it a company from just one land. You can also think of it as an organic growth that has no wires attached.
There are no loans or investors involved, just you and your surrender. This is not the most efficient way of raising money for a startup, but it leaves you with all the control over your company and is therefore called a great option. If your startup is in the first stage, you can start your business as well as develop it in this way and aim for better valuation while leveraging funds.
2. Friends and Family
Most people like to receive money from family and friends who know them best when starting their business. It is an attractive source of startup funding. To take the fund, you have to keep in mind that you have to give them some portion or some percentage of your startup equity. Assuming that you have started your business with the help of family and friends, then you have two options at that time – either take investment from them and provide the equity in your business or, take a loan from them and repay that money to them later with interest. Make sure that when they invest, your friends and family members will become the owners of the business. By the way, when you pay the loan in full, all your transactions are closed.
However, it is also warned that if it is not done properly it can blow up your business, it can also have a lasting effect on your social life. It is also not uncommon to think that the debts of friends and family lead to resentment and litigation. When you think about getting startup funding from your friends and family, be sure to consider some of these suggestions: document commitments and carefully outline financial options, showcase your startup plan and have them on a monthly basis be brief.
3. Bank Loans
If you want to start a startup, you can take a bank loan to start it. Bank loans are the most commonly used source of funds for small and medium-sized businesses. Before taking money from banks, you need a guarantee, such as it could be your house documents or any other property that is your personal. A bank loan is not a safe option, because if for some reason your startup fails, none of your assets will be left, whether your business or any of your other assets.
Almost every bank in India provides SME finance through various programs. For example, leading Indian banks – Bank of Baroda, HDFC, ICICI, and Axis Banks have many different options for providing collateralized business loans.
4. Government Subsidies and Grants
Equity-free funds from the government can be an attractive direction for your start-up business. If you have the ability to overlap with government goals in your startup, develop innovations and at the same time have a high probability of commercialization, you may be very eligible for a grant. There are two different types of puzzles, the fact that this competition is free, money is great and appeals to many people, so be prepared for the crowd.
Secondly, this process since this government is asking for money from you can take months to complete the application procedures and this includes essays, videos, and interviews. A good approach would be to do your research and target small business owners, women entrepreneurs, minority-owned businesses, and the like, businesses or sector-specific grants that have little chance of competing.
Crowdfunding is also a good way to get your startup funded. The crowdfunding fund is the fastest and safest method. Because the crowd is not asking you to give back. They only want the product or service you promised to deliver. If you need money for your startup and personal funds, then crowdfunding may be an option for you.
This funding source has become highly popular by some of these platforms, such as Kickstarter, Indiegogo or GoFundMe, etc., and relies mostly on small payments. Once you create your campaign and present your idea, anyone who believes in it can donate or lend it to you.
6. Angel Investors
Angel investors are wealthy investors who fund start-ups for businesses in exchange for equity. The government actually encourages angels by providing tax benefits, which often help to remove all the risks that are too high. Angel investors are individuals with a lot of surplus cash and are very keen to invest in upcoming startups. They also work in groups of networks to collectively display proposals before investment.
Along with capital, they also give you advice related to running your business. Angel investors have helped start many large companies such as Google, Yahoo and Alibaba. This alternative form of investment typically consists of reducing the initial stage of growth, with investors expecting equity to range from 20% to 40%. They like to take more risk in investing for higher returns.
7. Incubators and Accelerators
The purpose of incubators and accelerators is to accelerate the growth and success of your company. They provide resources and point you in the right direction to get some traction for your business. The right startup incubator works in the same way that a regular incubator works for an egg. Your business idea, similar to an egg, requires careful nutrition to develop successfully in a new environment.
The benefits of working with incubators and accelerators include experts in many business areas such as products, market strategy, sales, etc., and great networking opportunities between you, other entrepreneurs, coaches and investors, who are part of the event. One aspect to remember is that in exchange for participating in an accelerator program that will start your business, it requires a few% shares to be left. Just make sure that the price you are getting is worth the shares you are offering.
This is an option that all entrepreneurs personally love. Bootstrapping is also perfect for all types of businesses. Bootstrapping means starting your business with your own funds and resources, without having to depend on any kind of external fund, or with luck the cash coming in from the first sales. This is a great way to have complete ownership over your startup and become self-sufficient. But bootstrapping has its own opposition. You cannot do business with bootstrapping and if for some reason the business goes bankrupt, your own hard-earned money will also disappear.
A good first step is to determine if you need funding sources from outside, or if you can take advantage of the bootstrapping strategy slightly. Many successful entrepreneurs and startups have used bootstrapping to grow their business without giving control to other investors and have also achieved success. Essentially, bootstrapping is the ability to use existing resources to expand your current state.
9. Convertible Notes
Convertible note debt occurs when an investor or investor borrows a business from a group and has a collective agreement to convert the debt into equity in the future. Sometimes called a hybrid between debt and equity, a convertible note is a form of debt investment that allows a startup investor to convert principal or earned interest over time into equity. It is essentially “short-term” debt convertible into shares. This can be a great way to finance both startups or small businesses, but you have to be comfortable with loosening some control of the business. These investors are guaranteed a fixed date or fixed rate per year which triggers an option for conversion.
10. Venture Capital Fund
It is most important to know that venture capital is not necessary for all entrepreneurs. Right from the beginning, you should know that venture capitalists are looking for technology-driven businesses and companies with high growth potential in areas such as information technology, communications, and biotechnology. The main objective of Venture Capitalists is to be promising but to take an equity position in the company to help it complete a high-risk project.
This includes giving some ownership or equity in your business to an outside party. Venture capitalists also expect the same healthy return on their investment, which often occurs when a business starts selling shares to the public. Be sure to look for investors who bring relevant experience as well as knowledge to your business.
We hope that this information will help you understand and choose the top finance source to develop your startup financially.
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