Start-ups are the talk of the town and entrepreneurs are the new trendsetters. These businesses, be it small scale or at an upbeat level aim to provide services that are going to make lives easier and make people happy. Their methods are not by the book and their productivity unmatched. We can ourselves spot a huge number of businesses that have become blockbuster hits with the people and millions are using their services. Their valuation is in millions and billions of dollars but they do not have even a penny worth of profits in their balance sheets. How is it so?
The answer to the above question is, “funding”. The start-ups would not have been the same as they are today if it would not have been due to huge amounts of money infused in this business by various sources which we are going to know later. It is due to these funds that these ventures have sufficient working capital and are able to expand to places they have never reached out before. But investing in a new business comes with a risk attached to it. So, you need to search for the sources who believe in what you believe in and are willing to invest in it and this article is all about that.
FAMILY AND FRIENDS
In the initial periods of your venture, you can finance your business by using your own personal finances. You can use your savings and fixed deposits and once the personal financing dries up, you can look towards your family members, friends, and other relatives. The funding from these sources is flexible in repayment and can sustain your business depending upon the size of the venture.
Bank loans are the conventional sources of funding. A loan from a bank or any other commercial institution requires a strong financial situation. In order to get a conventional business loan, the business owner will need to show a detailed business plan, returns and profits that have been previously incurred and a bank will give out a loan only if it believes that your business is capable of making that steady stream of profit in the future.
The Central and State Governments in India issue funds for entrepreneurs to run their businesses. MSME, Ministry of Small and Medium Enterprises provides funds for ventures which meet its criteria and appeal to the board. The donations and loans may be anywhere up to 1 crore. So, in case you do not want to share your business with anyone in return for your capital, you can always reach out to the government.
In case you are out of cash but you have a strong appeal to the social space, you can launch a crowdfunding campaign in which people who relate with your product can give out donations. There are a number of sites which help you launch a successful campaign. With this, you can practically ask any person to fund your purpose and various ventures have had huge amounts of capital infusion by this process.
An angel investor is a high net worth individual who lends money in return for an ownership stake in the venture. These people invest in only those companies who they consider have a wide scope in future and wish to go public. Most angel investors look for a viable business with an awesome business plan and an equally capable management to run that business. Angel investors are the reason many start-ups you see today are running.
Venture capitalists are a group of highly rich individuals that manage the wealth of those rich people. A venture capitalist is similar to an angel investor and looks for same criteria that match with the angel investor and demand an ownership stake in return for their investments.
BUSINESS HOUSES AND STARTUP INCUBATORS
A serious entrepreneur may look forward towards business houses and start-up incubators which are cash-rich organizations who look for those businesses that have a market in the future and are very peculiar about their investments. They are similar to angel investors and venture capitalists in their funding process and have more or less the same conditions.
All these options are viable for an individual or a venture who seeks capital for the efficient working of their firm. It’s just that they come with a disclaimer attached and you need to be the very best at what you do and believe in what you are working on.