Funding - Everything You Need to Know
1st Feb 2017 17:57 KanishkTweet
For any entrepreneurial initiative, funding forms an indispensable pillar, without which it can’t even be dreamt of to stand. Gathering funds requires acumen in skills of ingenuity, gumption, besides being erudite with the financial norms of the land. In the contemporary entrepreneurial ocean, the Government of India has initiated a number of schemes, which can get start-ups ashore and get them firm-footed.
How to get started? How easy would it be if there was a formula to work upon to get funds? But what’s the point of it being on the top of checklist of entrepreneurs if it is easy? Albeit, this objective can be broken down into smaller steps.
Plan of action: You need to be clear about all dimensions a business involves including market information (audience, projected growth), financial metrics (budget, revenue) and a product launch date. It is required to be explained effectively, specifically and concisely before the investors.
Do your homework: Calculate how much money you’ll be needing for getting the ball rolling till the final product testing and the sum need to run it in the market. The investors will need the details about everything, plus you’ll have a clear idea about how much and where to extract from.
Sources for the funds: This part has been dealt with in the section below, ‘Types of funding’, where a brief information about the various sources has been discussed.
Networking: The old fashioned ways too, work well. LinkedIn, the largest professional network can connect you to some useful links. Seed accelerators can also be considered, who besides providing investment, can aid in mentorship etc. Acquaintances in the entrepreneurial ecosystem can help you link with investors, directly or indirectly.
Be prepared: Prior to getting a chance to propose an investor, you’ll have to argue your case in a number of meetings. Practise as much as you can, be ready with your questions. Know the people you are present with, be clear and confident, and impress them. When you get an opportunity, capitalize on it. Last, but certainly not the least, be persistent.
Types of funding: Goals are easier to be achieved when classified properly. The basic fund raising strategies for start-ups can be categorized as follows.
Equity funding: It encompasses all the means of funding where funds can be transacted for a share in the enterprise. Financing can be achieved in many ways. Seeds, are small sources of money, targeted for fresh start-ups, to provide for the initial requirements. It is easier to seek from number of seeding angel investors, but that involves managing multiple relationships, leading to “cat herd syndrome”. On the other hand, there is a single venture capital, who can meet the object, but that calls for larger premium and share of the company.
Bootstrapping: At times it is better to look into ourselves for solutions rather than seeking them outside. Bootstrapping implies raising funds for the firm by scrapping it out of internal expenditures. It requires a better execution and understanding to prevent dilution and hence produce better yields.
Debt funding: It is also a viable funding option. It pretty much corroborates with the literal implication, the amount lent is needed to be paid back, no matter how the company performs.
Venture Debt: It verily echoes what equity funding verbalizes, except that the amount has to be compensated.
AR line or accounts receivable-based credit lines: If your company has accounts receivable, alternatively, company is already earning, this is a cheaper, less risky option for in which investors are interested.
Asset loan: This is essentially a loan that is collateralized by equipment. If you need a significant amount of capital equipment, you can finance these purchases.
Small Business Administration (SBA) loans: These loans come with additional benefits of having lower interest rates and can be pondered over in a venture where funding might be tricky otherwise, but still, it has to be reimbursed.
Funds are not assets which are handed over to the firm by the investors to use at its will. The firm should consider itself the custodian of the funds. A judicious management of funds makes all the difference between success and failure; an idea which is viable in the long-term may not generate enough revenues in the initial stage. Thus, the utilization of funds should be in a manner that thrusts one’s vision to realization.