Raising start-up capital could seem like a herculean task for any entrepreneur. The need for a viable source for your business’s cash needs doesn’t end with the seed or start-up capital alone, but you also need financing for expansion and to take your company to the next level. Before reaching out to sources of company finance, however, you will need to create a strategy to pitch your business to the investors. They should be convinced with the motive and valuation of your business before they decide to offer your financial support. Here are a couple of pointers to keep in mind:
- Use networking and contacts or references to prove your credibility
- Pitch your estimated results and business value from the first round of operations to convince them of returns on their investment
- Reach out to them like someone seeking advice and not funding – the investors can help you better by suggesting appropriate methods
- Stay in touch with the investors frequently and follow-up on previous discussions regarding your company finance
Once you know how to pitch your business to the investors, it is time to look out for the right source of company finance for your business. Let’s take a look at the most popular ones.
Bootstrapping and Personal Investments
To start off, look at your personal savings which could contribute to your start-up capital. Along with your savings, evaluate your credit cards. You will be surprised to know that Google founders financed their efforts through the use of credit cards. Even bank loans consider personal investments as a major driving force for approvals. The only drawback is that it’s easy to fall into its lure and rack up a huge debt which can damage your credit rating.
Small Business Grants
The Government of India too has a facility to lend grants for start-ups and small businesses. Presently, the country hosts a number of national programs to support small businesses and start-ups – such as ‘Bank Of Ideas and Innovations’, the Start-up Fund, the ‘Pradhan Mantri Micro Units Development and Refinance Agency Limited (MUDRA)’, Small Industries Development Bank Of India (SIDBI), etc. – and many more state-based initiatives such as Maharashtra Centre for Entrepreneurship Development, Kerala State Self Entrepreneur Development Mission (KSSEDM), and so on. If you can crack the eligibility criteria for these programs, you will find the perfect base of company finance to kick-start your business. There are also a limited number of government grants for women and minority-owned businesses. You can also consider approaching the local Chamber of Commerce.
Okay, do not get confused by the term – it only means financial help from your friends or family or people you know. In the initial stages, many start-ups are funded by family, friends and colleagues. This type of financing is usually informal as you don’t need to formulate a business concept beforehand. You can repay these debts as and when your business incurs the required profits, and do not have to be bound by legal dues.
Banks may be apprehensive of offering loans to a start-up but if you can convince them of the returns on your business, this is one of the most convenient forms of investment. Consider factors like a track of personal credits, payments and transactions and leverage them to sell your business to the bank. Mortgages are a good way to get bank loans approved with speed and convenience as well. However, do be careful to only provide collateral which will be easy for you to clear off.
These capitalists maintain professionally managed funds and are one of your best bets for the big chunk of working capital that you need. You must however, remember, that the return period for these investors usually range between three to five years, so you must careful enough to pitch big revenues from your business as well as be capable of achieving them. Not only do venture capital investors provide you with the company finance to start your business, they also mentor you along the way to prevent you from stumbling financially. They are known invest on the basis of equity but once you have an IPO or undergo an acquisition, these investors will not be bound to your business any longer.
Investors are usually high net-worth individuals who lend support to innovative small scale and locally driven entrepreneurships. They are people who are keen on collaborating across various new ventures but may expect equities up to 30% of your business returns. Angel Investors are apt for start-ups since they are comfortable with lending smaller amounts as compared to the venture capitalists.
Incubators and Accelerators:
While incubators will help you start a business and cover your initial set up costs, accelerators will finance you when you are expanding. Incubators, too, work as mentors for new businesses, helping them with the cost for everything – from registrations to resources.
Crowd Funding is one of the emerging concepts in the world of microfinance and there are multiple cases which show how businesses have benefited from it. It is the amount raised through people who collaborate and network; they may be friends, family, colleagues, or strangers on a social networking site. Create a perfect description of your business which helps the common public to understand how the business works and benefits, and share your details across crowd funding platforms. The best thing about crowd funding is that it not only generates the capital you require but also create awareness about your business in the market.
Picking the right fundraising source is a significant part of the business strategy. Hence, take time to understand what type of company you are building and what type of funding will suit you the best.