How to fund your startups?
One of the major investment decisions an entrepreneur has to make is to measure a project’s potential risks and calculate the long term return on investment. To do so, one is most concentrated on efficient acquisition and allocation of funds geared towards optimum maximization of the profits.
Amongst the chief considerations while choosing a source to acquire funds for a business lies balancing the equity and debt so as to determine the best funding structure for the same.
the financial needs of a business along with the sources to meet them can be classified into:-
Now, following are some great ideas to fund your start-up:-
- Bootstrapping your own business: it refers to the process of self funding and commencing a business solely relying on personal savings and income from preliminary sales, contrary to availing any external capital including bank loans or crowd funding. Bootstrapping your way into success requires high confidence, determination, competitiveness and risk tolerance. Steve Jobs, Steve Wozniak , Michael Dell are among quite the extraordinary who managed to reach the zenith with bare minimum initial capital and no support from investors. However, it may result in low cash flow and increased levels of stress for the entrepreneur and high risk of failure.
- Crowdfunding: It means using small segments of capital attained from a vast majority of people to fund a new business venture through the use of social media. It is one of the fastest ways for a business to gain media attention and raise finance without any upfront fees. On the other hand, traditional ways of raising funds seem less tedious and huge amount of interest building and marketing needs to be done before the actual launch of project. Once it is launched, if it is not patented or has a copyright, there is always a huge chance of stealth.
- Venture Capital: It is a type of financing in which investors scrutinize and invest in start-up ideas with perceived long-term growth potential. It is one of the most prevalent and important source of funding for new companies as it does not require direct access to the capital markets. However, the ownership stake of the founder is relatively reduced and it is not a cake walk to attract investors.
- Angel Financing: It refers to a type of funding where an individual or a group of individuals, primarily, known as angel investors, finance small business or start-up ideas out of their own net worth in return for equity. In addition to a business angel’s funds, you get access to his sectoral knowledge, mentoring, acquaintances and managerial skills. However, finding an angel investor can be a tedious task and one has to fore sake one’s ownership share at times.
- Availing Loans and Start-Up Grants: One of the most reliable and convenient ways to get your business funded is by resorting to bank loans and start-up grants which is mainly categorized into term loan and working capital loans. However, you need to have an excellent credit history or assets to offer as a collateral in order to avail these. Start-up ideas and businesses are highly encouraged by the government because they help building a strong ecosystem and promote growth through innovation and technology.
- P2P Lending: P2P stands for peer to peer lending. In this, the individuals seeking funds get in direct contact with lenders online via P2P lending websites without resorting on any financial institutions or middlemen. P2P websites generally offer more attractive interest rates than banks and other financial institutions and often are willing to grant loans at smaller sums which banks do not. However, these loans are not covered under any sort of financial compensation schemes and a lender might suffer from bad debt incase the borrower is unable to pay the loan.
- Overseas Funding: It refers to attracting investors located outside the entrepreneur’s country of residence. It is considered as one of the best ways to expand your business by reaching the foreign markets. It allows you to collude with a large pool of investors variegate your sources of getting funds. However, there is a huge risk of one’s idea being stolen without getting any remedial measures.