Starting your own business can be challenging. It involves multiple factors such as investment of time, risking career as well as finances, building a network, facing failure and criticism, etc.
However, the most important factor of all is fundraising.
Lack of funding leads to poor services, low-quality products, an unhealthy work environment, and sometimes even leads to financial debt. It is one of the most common causes that stop aspiring entrepreneurs from achieving their goals. They often find it difficult to arrange the funding amount and end up dropping their idea.
Startup funding is indeed difficult, however, it’s possible to do so. Here are some simple yet effective ways for business funding:
1. Self Funding
The easiest way for beginners to arrange funds for their startup is self-funding. Also known as bootstrapping; this method is widely used by novices.
Self-funding is generating funds on your own. This does not involve any financial help from outer sources such as banks, investors, credits, etc. You can use your savings, income earned from previous work, assets, etc.
Companies such as Apple Inc., Coca-Cola, and even Microsoft started with self-funding.
Risk:
- Self funding may lead to shortage of funds because of no external help. In such a situation, you will find it difficult to purchase raw material/stock.
- Through self funding, all your assets are at risk. If your strategy fails, along with your business, you will end up losing your assets too.
Benefits:
- By self-funding, you have full ownership of the business. You don’t need to wait for anyone’s approval or to explain your strategy.
- There’s no burden of repayment of debt or high-interest rates.
How to do it?
Self-funding can be done using savings, selling assets, and generating other sources of income. You raise the funds for the startup on your own and invest it in your business.
2. Find Venture Capitalists or Angel Investors
Investors are people who are minded to spend money on your business. In return, they expect ownership, share in profit, involvement in decision making, etc.
There are multiple investors available, however, you need a good strategy to make them invest in your business. For example, Angel investors, venture capatalist, etc.
Who are Angel Investors: Angel investors are people with surplus funds who are willing to spend large amounts in your business. These are individuals wanting to invest and not organizations.
- Angel Investment Network
- AngelList
Venture Capitalist: Venture capitalists are the firms who invest large amounts in startups or businesses in return of equity.
Examples of venture capitalist firms are:
- Blume Ventures
- Sequoia Capital India
- Accel
- Matrix partners
Risk:
- Investors may ask for a share in profit or ownership rights.
- They can back out sometimes which will lead to conflicts and risk of business failure.
Benefits:
- They provide investment in large amounts. If you are someone who is planning on starting big, an angel investor is a right choice for you.
- Your personal assets are safe and you don’t need to make huge investments from your end.
How to do it?
To get angel investors or venture capitalists, you need to have a good business strategy and a way to present it. You basically have to show how the investor is benefited if they invest in your startup. Once the investor is satisfied with your business idea and pitching, he will invest in your startup.
3. Bank loan
Taking a bank loan is considered as one of the safest ways of borrowing money. Because of continuous government involvement and a transparent banking system, the bankers charge fair interest rates and deals.
Bank loans are well known among people who don’t have much savings and couldn’t find the right investors.
This is a great way to collect funds for a startup without losing ownership. Some of the banks that provide loans with bare minimum documentation and low-interest rates are HDFC and SBI.
Risk:
- Your assets are at risk if you fail to repay the amount.
- Bank will not lend you money after a certain limit.
Benefits:
- Moderate interest rates.
- Safe space to lend money from,
Ho to do it?
To get a bank loan, you need to fill out some forms, have a job (in most cases) and show you have assets in case you can’t repay(collateral).
4. Going for Partnership
Apart from financial investment, startup involves time, efforts, decision making, critical thinking, planning, recruiting, etc.
Through the partnership, you will share the burden. The other person involved in the business will support financially as well as take an active part in decision making.
A partnership can be dual or can involve multiple partners as there are different types of partnership. You can also look for partners that are dormant i.e sleeping partners. In such cases, the partner has no say in the business but is entitled to profits and losses.
Risk:
- A partnership can sometimes lead to conflicts. In such a situation, you will have to compromise or figure out a way to work together.
- If the partner turns out to be malicious, it can lead to theft or even debt.
- You don’t have full ownership of the business unless the partner doesn’t want to be involved.
Benefits:
- There is Limited liability involved in the partnership.
- You have someone supporting you and helping take important decisions throughout the business.
How to do it?
There are multiple ways to start a partnership. It can be written as well as verbal. A written partnership is more accurate and doesn’t lead to conflicts in the future. You need to register under the partnership act. All the terms and conditions of the partnership are mentioned in an authorized document. Starting a partnership business can be time-consuming.
5. Crowdfunding
Crowdfunding is done by receiving donations or getting pre-orders of products. This is a recent strategy where entrepreneurs express their business plans online to the crowd and the ones who like it support it in different ways.
You need to explain your services and business plan to the crowd and leave a prominent mark to make them support your entity.
There are three main types of crowdfunding: Equity-based, reward-based, and donation-based.
Risk:
- Crowdfunding is highly competitive and needs to be done correctly to get funds for the startup.
- One of the biggest disadvantages of Crowdfunding is that it does not specify the funds you will be getting. It could be more or less depending on the crowd and type of funding.
Benefits:
- You can generate a large amount through crowdfunding when done correctly.
- Helps you gain potential customers and make new customers.
How to do it?
The first step towards getting access to crowdfunding is looking for crowdfunding websites and creating your profile.
Some of the websites for crowdfunding:
- Kickstarter
- Patreon
- SeedInvest
After creating a profile, you need to pitch your idea and your services to the crowd and attract them. Once you build their trust, they will purchase your services and donate/invest in your startup.
6. Government Subsidies
Risk:
- Government funding needs too much paperwork and documentation to get the loan.
- You need to meet the eligibility criteria to apply for a loan.
Benefits:
- Do not take away ownership.
- Supports small entrepreneurs by providing finances and reducing taxes.
How to do it?
To get the government subsidy, you need to be eligible as per the requirements mentioned by the government of India. After being eligible, you need to apply to get the subsidy.
7. Pre-orders or Post Payment on Raw Material
For post payment of raw material, you need to find a supplier who is ready to sell you the input you require for your startup without advance payment. You can ask them to extend the payment date till a certain time.
You can also offer them your services or business idea in order to get the supplies.
- Prepayment on order: Asking customers to pay in advance before the final product/service delivery. This will help you get the amount without taking an actual loan.
- Post payment on raw material: This approach tells you to purchase goods on credit rather than taking a loan using which you will purchase the goods. You can request the supplier to provide the raw material on credit.
Risk:
- Both these methods require trust with customers and suppliers. You need good networking to build faith.
- The supplier can stop providing input if the previous dues are not clear and the customers can ask for repayment.
Benefits:
- This strategy saves you from taking loans.
- You are already selling your products by following this method.
How to get pre orders:
To get prepayment on orders, you need to build trust with the customers and have great networking as well as marketing skills. Once they trust you and your service, you can ask for payment in advance.
How to get post-payment suppliers:
Starting a business requires a lot of money. At least this is what people say. But, what if I tell you that you can start a business with very little investment?
There are two ways you can start an enterprise without a huge investment. Here’s how:
8. Shares/ Debentures
Shares and debentures are issued to raise the capital of a company. In return, you give the shareholder dividend and debenture holders interest.
There are two types of shares, equity, and preference.
While shareholders are the owners of the company, debenture holders are lenders of the company.
Risk:
- By issuing shares you lose ownership and by issuing debentures you are required to pay interest irrespective or profit/loss.
- To be eligible to issue share/debenture you need to go through various procedures such as approval, eligibility, registration, etc.
- You need to have goodwill to sell shares/debentures. Also, it’s hard to sell them.
Benefits:
- Shares/debentures help generate huge amounts.
- You have limited liability once your startup is registered.
How to do it?
Issuing of shares requires permission from the board of directors, filling of forms, etc and issuing of debentures needs decision making whether the debentures can be converted into shares(fully or partly), form submission, approval, and so on.
Overall issuing shares and debentures is a lengthy process and are usually done for large companies.
9. Considering a Friend/Family
Another way to generate funds for your startup is to ask for money from your family members or friends.
These are the people who have known you for a long time and trust you. You don’t even have to tell them your business strategy to get the money.
You can ask multiple people in your relations for investment.
Risk:
- They can ask for money back anytime if they need it and you won’t have any other option except to give it back.
- Your relationship is at risk with the person you are borrowing money from. For example, you can’t repay on time, they criticise you for taking money, you get in a personal fight with them, etc.
Benefits
- Low or even zero interest rate. Also, you can repay the amount in your comfort zone.
- No need to give up the ownership rights or share profit.
How to do it?
There is no specific way to ask for a loan from family or friends, however, choose the person wisely. Someone who is financially stable and in a position to give the amount.
You can mention a specific date when you will repay the money to reduce their concern of repayment.
10. Winning Contest
Generating funds for a startup can be also done by winning contests. You just need to have a business strategy that outsmarts all the other strategies.
It is difficult to win a contest however this method is still famous because you don’t have to repay the amount.
- Big50-2022 startup competition
- Together2022
- Startup competition 2022
- Student Entrepreneur National Competition $16K
- $10K EPIC Business Model Canvas Competition 2021
Risk:
- Winning a contest requires substantial efforts as this is highly competitive.
- Contests can sometimes get delayed or canceled which will directly impact your startup.
- There’s no guarantee of winning the prize.
Benefits:
- You don’t have to repay the amount if you won it in a contest.
- You gain some popularity when you win the contest that will further help you make customers.
How to do it?
To win a contest, you need to have a great business strategy. You need to show how you are better than the competitors. You should also have an exceptional way to represent it.
10. Conclusion
Capital/funds are the topmost essential thing in starting a business as well as the continuation of it in the long term. It gets raw materials/supplies, remuneration of employees, helps build an offline enterprise, expenses of furniture and interior, day-to-day miscellaneous activities, etc.
If you don’t have enough funds now, start with small. Fundraising is arduous but if you have a passion for work, you can do it too. The points mentioned above are some of the ways on how to find funds for your startup.
Comment and share your experience of fundraising
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