Funds for a start-up means growth and expansion of business, water is a necessity for a plant to grow likewise funds are a necessity for the start-up to walk on a successful road. Lack of funds is the biggest reason behind failure and success of the business. Over 94% start-up fails during the first year, according to a recent study.
Money is the bloodline for the functioning of the business. Start-up finds it difficult to find the right amount of investment they are looking for in the beginning. So to clarify their doubts and have a clear understanding of the solutions that they can opt for to raise funds are.
Bootstrapping is self-funding which is the most effective way to finance a start-up. Although most entrepreneurs fear of putting their own capital in at the initiation period of business, but it is the most secured way as you are not in anyones debt and no interest being charged for the same. Sure, there is high probability that start-up might not be able to grow in first year but if the idea is innovative and there is a proper business plan then bootstrapping is the best way to raise funds for business. Entrepreneur can raise funds from family, friends and savings, which is easier as there are less or no formalities while generating funds.
Crowd funding is a new way of funding that has helped a lot of start-ups to raise funds. In this approach funds are attracted from more than one investor. Platforms like Businessex.com are there that helps entrepreneur to form their business profile with the description of product and services they are offering, and these profiles can be seen by various investors so that interested ones can contact the business. Crowd funding is the best option for start-ups as they will get necessary capital for business in low interest rates as well as marketing their business.
Angel investors are individuals that are keen to invest in start-ups. They are individuals that analyse the business profile properly and if they are interested then approach the business for investment. Angel investors work in groups of networks to screen the business profile and select most suitable one or they can also be friends and family members of the entrepreneur. They are seed investors, which propel business by injection of money to carry on their functioning in early stages.
Venture capitalist provides support to small businesses to grow or they could also provide capital to business but they dont have any access to companys equity. A venture capitalist is most suitable for businesses that have risen above the early stages, like Flipkart, Uber, etc. so that they could expand their business in the market. They provide guidance and act as a mentor for businesses to mark their presence in the market and reach a sustainable position. A drawback that venture capitalist have is that they want returns within the short period of a window of 3-5 years.
An incubator could also be called as a business developer. They provide services, mentorship and nurture start-ups to walk on their own feet. These are the firms that foster the business in its early stages till it reaches a certain level and has financial capability, human and physical resource to function on their own. They assist start-ups in building networks in the industry with right investor, supplier, etc. Businessex.com platform made it possible to help start-up connect with a right incubator for their firm.
The first thought of generating funds for a start-up is taking a loan from the bank. It is the most common way of generating funds for start-up in India. Start-ups can avail term loans or working capital loans or asset-backed loans from banks. Term loans are of two categories short term (for shorter time period) and long-term loans (for longer period). Working capital loans are for day to day operations of business. In assets based loans business have to deposit some security of assets in exchange to raise funds for their business and there is a risk that bank might seize borrower assets if amount is not paid back on time with interest.
There are non-banking financial companies (NBFCs) present in India, registered under the Companies Act, 1956 of India. NBFCs help raises funds through loans for MSMEs. These are suitable for those start-ups having limited finance requirement and would not be able to access bank loans services due to low credit ratings.