Launching your own business and living the entrepreneurial dream is the vision of every startup founder. Unfortunately, things don’t always go according to plan, because we can’t really predict what lies ahead of us. More than 90% of startups shut down during the first five years of operations and there’s a reason why – finances.
Put simply, when you first take your idea from concept to reality, funding matters. Today, we’ll cover some of the most popular ways to raise funds for startups in India and what else you can do to make sure you meet your requirements.
Funding Options to Raise Startup Capital (Money) for Your Business
There’s no one-way ticket to funding when it comes to raising capital for your startup. The initial stages are always hard but if you work smart, and play your cards right – you’ll get it. Here are some of the most popular funding options on how to raise capital for your startup.
The first and most popular way of funding for a startup is self-funding or funding your idea by yourself. If you believe in your idea strongly, you’d definitely fund it yourself – at least to a certain degree. This not only reflects your seriousness but other investors will acknowledge your efforts too and be willing to take a look.
Crowdfunding is basically getting many people to invest tiny amounts of money into your business plan, goals, and ideas. For this to work, you need to have people who believe in your venture or startup concept. There are various popular websites for crowdfunding online and you can make the best of both worlds by asking people offline too. From your neighbours to your parents, friends and family, and places or meetups where you get to network for career opportunities or startup events, crowdfunding has literally no limits when it comes to the possibilities.
3. Venture Capitalists
Venture capitalists support startups in their initial stages with professionally acquired and managed funds. Ordinarily, they are the investors who invest in businesses which don’t have access to market equities. Since they invest in small businesses and startups, the funding offers may be lucrative. However, they invest in your startup sort of like equities, in different proportions. They quit or don’t invest, however, if your startup has already released its Initial Public Offering (IPO).
4. Angel Investors
Angel investors are literally angels for your business when you’re strapped in funding options. However, it comes at a price for the future. If an angel investor agrees to fund you, he may demand a huge portion of ownership from your startup. Sometimes this portion may be as high as 30%, and that’s why you need to be aware of what you’re getting into when you commit to one. The good news is you get a substantial amount of funding when compared to venture capitalists and that’s a huge plus.
5. Business Incubators and Accelerators
Business incubators not only invest in your business but also help it grow. Business accelerators, on the other hand, speed things up and get your idea running off the ground. There are many business funding programs with these two keywords in various cities so be sure to watch out for them. Furthermore, in the case of business incubators, mentorship and training are offered for around 4 to 8 months, generally speaking. However, if you don’t stay committed, only bad news will await you.
6. Startup Events and Contests
There are many startup events and contests hosted every year in different Indian cities. These are the best avenues to showcase your idea’s potential and compete with other brands. If you win these, not only will you win money but get potential and high-profile investors to notice you. Get their backing, continue putting in the work, stick to your commitment, and you’ll watch the magic unfold in reality.
7. Bank Loans
Banks provide lucrative loans at attractive interest rates to startups and small business owners. But to get these loans sanctioned, your idea must be solid and you must have an action plan in place. It’s your job to convince the bank officials that your idea is worth investing in and if it is – they’ll decide how much or what interest rate they should cap the loan at.
8. Government Funding
You’re living in India and the Government watches every step you take. We’re kidding, but not about the government part. You can secure funding from the government and national authorities by submitting your business proposal to them. They’ll scrutinize your application and if it seems worth it, you’ll get some funding. Or you might save on taxes, which works too. Startup India is a good resource to look into regarding this.
Micro-financing, while on the slightly more expensive side, is another popular way of getting funding when your business doesn’t qualify for bank loans. If your CIBIL score is low or if your idea gets rejected downright, consider this option. Put simply, these are financial services which are an alternative to bank loans.
10. Retail Investors
Retail investors are other players in the industry who are active in the same niche or similar/related ones. These investors usually invest in your idea in a way similar to how it’s done for mutual funds – in small pieces. You might get these investors from closed groups and they’re likely to give you industry advice too, besides the investing part.
Funding doesn’t always go the way most startup founders picture it. There will be questions, which is why we’ve made a list of the most popular ones.
1. How Do I Raise Funding for a Startup Business with Bad Credit?
The short answer is – it takes time but it’s a bit easier than you think. Look for web-based loan providers or micro-financing players and you’ll get a headstart. Besides this, if you have bad credit – you still have angel investors, crowdfunding, and bootstrapping or self-funding options in place. Banks typically account for just 25% of your funding requirements, which means the rest comes from other sources. That’s the great news.
2. Will My Investors Sign an NDA Prior to Funding or Investing?
No, they won’t. Because they’re simply too busy for it and won’t put in the energy to steal ideas at their initial stages like that.
3. How Many Founding Team Members Should I Have for My Startup?
No more than two to three. Because things get confusing or may slow down if you have multiple founding members. Keep it simple.
4. How Do I know If My Idea is Worth It?
The surefire and easiest way to find out is to talk to your consumers or customers. Interact with them, meet up, offer free samples or demos, or even provide pre-launch offers. Get as much feedback as you can from your users and improve upon your product. And before you know it, you’ll get where you want to be.
5. How Much Should I Spend on Myself?
As little as you need to get by. You want to handle your finances responsibly and look disciplined to investors, not be someone who’s untrustworthy and overspends unnecessarily.
Getting funding isn’t as hard as you think but it takes three things – commitment, uniqueness, and time. Get these in order and you’ll be getting there sooner than you think.