Funding is the key to a successful business because money is like oxygen for a business. Without money, a business cannot survive. Every business drives through a rough path of ideas to generate revenue. The fuel needed to travel throughout this long journey is called “capital”. This story is common for every startup. No startup can run without a bank balance called capital.
So a business should always keep searching for ways to generate higher revenue. In today’s article, we will understand what is startup funding, its wide features, and how to get ready for funding!
Understanding startup funding?
Every business begins with a small enterprise. Some remain unchanged and some reach sky-high. Some small businesses have the potential for explosive growth. They have the required revenue and the right direction. This category is termed a “Startup“. They have the potential to reach their goal with startup funding.
Your investors will invest the money as well as expertise in your business. They help you expand your outreach and even increase your employee capacity.
Benefits of startup funding:
- Helps business grow tremendously: Funds help a business go off the ground. Startup funding encourages employees to become entrepreneurs by providing financial assistance. It guides the employee to convert an idea into a product.
- Provides access to business capital: Investors and bank loans fund a startup business. These financial investors offer the startup access to business capital. The institutions have a time limit for loan repayment. Your business can repay the loan in time if you earn good profits.
- Help businesses build a team: Startup funding helps the business hire more employees and create a strong team. With the funding help, the company can find more skilled persons.
- Introduction to your experts: Startup Funding lets you meet experts in your niche. They provide technical support to your business. The experts are always available to provide business ideas and other advice. This helps the business make better decisions.
- Provide a competitive edge: Startup funds provide a competitive edge in the market. The business receives a financial and business insight that helps set its industry standards and acts as a backbone for the startup business.
- Increases brand exposure: Funding lets the investor expose your brand in the external market. Your business can obtain more clients through referrals. This increases the scope of your brand to meet new people and widen the customer base.
- Builds credibility: Funding help the startup build credibility in the market. This provides the business with more customers and better loan rates.
- Funding in the marketing area: A startup spends its revenue on marketing its business. Marketing is the most preferred area of the company to establish itself in the market. Funding on this spot will provide great support to the startup.
Types of startup funding:
Startup funding depends on the level of development of your company. Let us have an insight into the types of startup funding:
- Bootstrap funding: It is another name for self-funding. During the initial stage of any company, the business has an empty pocket. It has very low capital to invest in. The business tries to gather funds from every type of source available. It can invest from its savings and let its close associates contribute. Bootstrapping is the first funding option for a business. You can pitch your startup concept with the help of your family and friends. It is a great way to raise your startup funding.
- Seed funding: It is the initial round of funds from an external source. Seed investors are the capitalists who are willing to invest in your startup. Seed funding help get more traction. Seed fund rounds are not limited to any number.
- Crowdfunding: It is a popular newcomer to the list of startup funding. It involves taking loans and getting investments from more than one person at a time. The company will provide necessary details over its crowdfunding platform. The platform invites all those who what to invest or donate to raise the company’s funds. Crowdfunding generates the interest of the viewer and promotes its products and services. India provides many popular crowdfunding sites like Indiegogo, Ketto, Catapooolt, and many more.
- Angel Investments: They have a keen interest in investing in the startup. They even offer advice and suggestions to improve the company’s performance. Angel investors have succoured startups like Google, Yahoo, Alibaba, and others to reach sky-high. They invest less than venture capitalists. Popular angel investor websites in India are Mumbai Angels, Hyderabad Angels, and others.
- SBA (Small business administration): Established in 1953, The SBA offers reliable business loans to small businesses. The loans have low-interest rates. Many financial institutes offer such SBA loans. They act as lenders. An SBA loan lender can pitch your business ideas. To avail of such loans, you have to meet certain requirements.
- Venture Capitals: They are professional funds and invest in companies with huge potential. They provide expertise, and mentorship to the company they are investing in. They are beneficial for startups that have already started generating revenues. They prefer companies with a strong employee base. Venture Capitals like Nexus Venture Partners, Blume Ventures, Sequoia Capitals, and others are popular in India.
- Business Incubators & Accelerators: They are investors at the early stage of a business. Incubators nurture the business and provide training and networking to the company. Accelerators help the company to run and jump higher. They run for 4-8 months. One of the popular accelerators used in the US is Y Combinator, Faster Capital. India offers services providers like Amity Innovation, IAN Business Incubator, and others.
- Funds raising through contests: Contests are a great source of raising funds for a company. In the competitions, businesses either build a product or prepare a business strategy. Your business can get great social outreach by winning such competitions. You can pitch your business ideas in such contests. Popular startup contests are NASSCOM, Microsoft BizSparks, Lets Ignite, and others.
- Funds from bank loans: Banks are a great source for company funding. Banks provide working capital loans and funding to companies. Working Capital loan helps run a complete cycle of revenue. Funding includes sharing of a business plan and valuation information. Indian lending banks like HDFC, ICICI, and others offer financing through various programs.
- Set-forth capital firms: They make huge returns by investing in startup ideas. Venture investors and capitalists always pick the startup of their choice to invest in. They accept the risks involved in the startup. As a business, you should disclose relevant details to attract venture capitalists.
- Business Loans from Microfinance and NBFCs: Banks do not provide their services to small businesses due to their low needs. Microfinance is access to financial services for such small businesses. NBFCs(Non-Banking Financial Corporations) also provide banking services without any legal requirements.
- Govt Programs for Startup funds: The government launched many startup programs in its budget. It aimed at improving India’s startup ecosystem. The government of India has launched many programs like “Startup India“, “Bank of Ideas and Innovations“, “Pradhan Mantri’s MUDRA”, etc. The programs extended help to SMEs. On submitting a business plan, such organizations will sanction business loans for you. States also come up with different programs for small businesses whenever required. Keep a track of programs initiated by the Government. The Indian government has launched the “Atmanirbhar Bharat” program to fight the pandemic Covid-19.
- Other fundraising ideas: There are some more ways to raise funds for your startup business. Some of them are selling products much before their launch, selling the company assets, providing business cards, and others.
Steps to raise funds for your startup:
- Get some traction: I am assuming, you have already validated your business idea and working with your first product, or say MVP. If you are looking for first-time funding and don’t have any traction, bootstrapping and self-funding is the good option for your startup. Because for any investor doesn’t matter whether you are going to pitch angels or VCs; everyone needs some actual figure, and to collect the real figure, you have to generate some traction in terms of money or users.
- This point might disappoint you, but it is a bitter truth which you can’t avoid if you want to start a startup. Many early-stage founders thought funding is easy and if we create an engaging and well-graphic pitch deck so I would get funding, but the harsh truth is investors don’t care about your business ideas, pitch deck, and all. They need a real value that is called traction. You probably believe in me because, during my first startup, I had the same thoughts, which led to wreak $10,240, but nevertheless, I learned a lot and felt I did MBA using this money.
- Prepare for funding: Once you have some traction, then get ready for the funding while creating the pitch deck and business plan. Pitch deck should be clear and focus on only important points. You have to explain every critical aspect along with the mission and vision for your startup. Sir Ratan Tata delivered a piece of great advice for early-age startups and pitch decks, which you can download from here.
- Get ready your navratan (Potential team): If I say you, funding is impossible without a team, you probably won’t believe me, but in reality, investors always fund you on your core team, not in especially you or your idea. Because as a single person, you can’t do everything, to get productive results and working efficiency, you need a strong core team, and that’s what investors want.
- Find out potential investors: Once you have created the pitch deck and team moves forward for the investor’s selection. For early-age startup, I’d strongly suggest you to go for incubation or acceleration, because these programs will help you to get ready for seed funding and mentorship. To get enroll in incubation or acceleration, you can join with startup India platform, or find out over google, where you will get a bunch of groups, some of will be paid or some of will be free. If you looking for seed funding then get connected with angels or VCs as discussed above in types of funding. To get connect with them, you can probably reach out through LinkedIn, email, form, etc. Always find an angel or organization in the same niche because these guys can help you in mentorship as well.
- Self-assessments: If you receive a reply from any investor, don’t forget to do a self-assessment for your company and personally before going to meet them. Because investors might be asked some tricky and technical questions like alpha testing, churn rate, beta testing, due diligence, etc., you should always be well-prepared for these kinds of terms and all questions related to your business and niche. Make sure to get clear about equity and shareholding patterns which you want to a lot the investors in the returns of funding.
- Receiving the term sheet: If the VC company board votes to invest in your company, they will offer you a term sheet. term sheet carries all the basic terms and conditions of the investment.
- Scrutinisation: The VC company officials will examine your company’s records. They would scrutinize your intellectual property, legal matters, and claims. The company will conduct due diligence before finally transferring funds into your company.
Create a story pitch:
Analyze your business plan and write a pitch to your investors in a convincing tone. Steps to writing a convincing story pitch:
- Keep the pitch short and precise to keep the investor’s attention alive.
- A short PowerPoint presentation will do the work.
- Mention your business goals and objectives.
- Include site maps and statistic data to prove your words.
- Include customer feedback and testimonials in your pitch. Also, include real-time case studies.
Your startup funding should carry out company expenses and implement required changes. Create a proper business strategy and decide where to raise your funds. Your investors should have the assurance that their money is spent well. So this article will help you enter the world of fundraising for your startup business. Begin your fundraising journey with good corporate governance. Invest some of your revenue in software and tools for your company’s growth.