Funding is the bloodline for any organization.
Be it a small, new startup or a well-established company with a million-dollar turnover, they all require funds to work and mobilize the assets. Where big and well-known companies find capital and borrowings fairly easily, startups and people with good ideas find it harder to acquire the funding to lift them off the ground. They have to grind in order to find someone who is willing to invest in their ideas and take the risk on them.
Often people are not able to find the right person who believes in them and their idea who is also interested in providing them with much need financial support. But the lack of investment is not the only reason due to which startups are not able to find the capital so required.
The biggest reason that might be holding the young and potential startups is the lack of information that they have regarding how to get funding; most of the time they look for some big company to invest in their idea and they wait for the perfect investor to emerge but that is not the only way to get funds.
And if you are one of those people who are looking for funds but do not know where to start from, then read this article carefully.
Following are the various ways through which a company, who are still finding their footing in the market or young minds wishing to start their own company, can acquire the needed money.
· Self- Funding
Self-funding, also known as Bootstrapping, is the idea of funding your idea or startup with your own money, instead of looking for outside help. This way of funding supports self-sustenance and independence. Since the money invested in your own, it will not dilute any ownership nor will it divide the power of making decisions outside the company itself. Moreover, there is no need for any formalities or waiting out the gestation period. The capital will be available to use from the first day of business.
However, there is always a risk of burning out your savings if the business does not take off but the risk is always going to be there. Business and risk are two sides of the same coin. It is the dedication and hard work that separates a successful business from those which did not do so well. Motivation also plays a major role in keeping everyone focused and excited, and there is no greater motivation than ensuring a profit on your money.
Under this method, companies or individuals who are seeking funds, describe their reasons for the requirement of funds. This may be for starting a business, purchasing some material, launching a product, etc. They create a profile which provides potential investors with information like the company’s performance, their products, etc, in order to convince them to support their cause.
Consumers who are interested in the company or the product or simply just wish to support the cause choose to invest, purchase or donate to the company or individual so chosen.
There are many platforms such as Kickstarter, Indiegogo, Patreon, GoFundMe, etc, which give a chance to people to raise funds in different ways. There are sites for people who wish to raise money for non-profit reasons such as Causes, Crowdrise, FirstGiving, and many more.
This type of funding is fairly new and is dominantly used in western countries like the USA but it is not restricted to any one country. Anyone can raise money through these platforms according to their requirements. Although one must be aware that this way may take up a lot of time to achieve the target as people might not want to invest. Also, the description must be a promising and attractive one and the company must deliver in accordance with the promises made on the profile.
· Venture Capital
Venture capital is the financing provided by investors to startups and new businesses that show long term potential. The venture capital is often provided by rich investors, investment banks and other financial institutions. These investors have an eye for businesses with great potential. The risk of investment is usually quite high but these investors are experienced and do intensive research and study before they invest.
The risks are higher than normal but so is the profit percentage that these investors get for investing in the business. They usually get a part of the equity as owners for the capital that they invest. This capital launches the startups and new companies and allows them to deliver quality products and services.
· Angel financing
Angel financing is referred to the individual investor who backs up the company’s finances through proving funds at the beginning stages of the company or to startups. This investor is usually an individual and not firms or financial institution. This investor provides money either through one-time investment or in different stages in the form of instalments.
This form of investments in usually in turn of equity shares in the company which does dilute the power and profit of the founder but the flow of funds is constant and the investor is usually experienced. This experience can prove very helpful in times of making decisions.
Companies and startups can get help from business incubators for funding and other resources. These are units set up to help young and rising businesses or startups in solidifying the base. These units provide different types of resources such as a place for an office, warehouses, funding, assets, etc, at either a very low rate than that of market or free of cost as well.
In India, 36INC is the incubator created for providing launch base to domestic startups and businesses. These incubators help to strengthen the domestic business stage of the country. Their units provide all sorts of help to the startups that fit their criteria.
· Bank loans
Bank loans are the oldest and most traditional way of raising funds. Every bank, either commercial or public, provide loans for various reasons, for example, to buy the land for business, to buy an office area in a building, to purchase assets, to finance the launch of the company, etc.
Although a lot of paperwork is involved in the process of raising a loan through a bank, there has been a significant effort actively made by commercial banks to reduce the paperwork to the minimum. If the applicant meets the criteria of the loan that is applied for, the bank provides the loan with certain conditions and rate of interest.
A bank loan is a trusted source of finance as the investor i.e. bank is a reputed institution and is under the supervision of the law. There are certain laws that have been drafted for both the bank and the applicant. Startups usually get the loans fairly easily from banks if the prospect of the business looks promising enough to the bank. Once the money is transferred to the applicant’s account, the individual or the company is free to use the money for whatever purpose allowed under the contract.
Startups can earn a significant amount of money through enrolling and winning various competitions and events. The company may choose the area in which they excel in and then enrol the company into a competition that is themed around the mentioned area.
The winning prize of the competitions may vary from one to another and if the founders and employees are good enough to win, they can use that money in financing the expenses of the startup or can even add to the capital.
Although there is a 30% tax rate on the money that has been earned through any kind of entertainment or lottery, whatever amount that is left at hand is better than having nothing. Hence, young companies should keep an eye out of such competitions; every opportunity must be seized.
· Government schemes
Government of a country formulates different schemes and programs for the industry sector, in order to promote business in the country, to increase the GDP. These schemes provide different aids and reliefs for the eligible can, dates. Indian government for example, has created SEZs which stands for ‘special economic zones’, to promote industrialization in that area.
Tax rebates are given for electricity consumption, purchase of fixed assets, expenses in favour of research and development, etc. These rebates help the companies that have seen some time in the corporate world and have found their footing. But the government also helps startups and new businesses as well.
The recent prime minister scheme in India provides new startups and businesses with funds to finance the expenses of the company in the initial years at significantly low rates. The government also sets up incubation units to provide support to startups.
There are many more ways to acquire funds for any startup or company but the founders need to be aware of these schemes and aids. One must hold knowledge about their field of work and auxiliary business activities. Even though the government of every country does provide significant support to the budding business conditions, one must never be fully dependent on them. There ought to be proper research done on alternatives.