The process of building a company is much similar to constructing a house. The house’s foundation is created initially and likewise, the underpinnings of an organisation are decided early. Another thing which correlates in both cases is the monetary requirement. For establishing one’s business, as well as a house, one needs to have a large chunk of money.
Talking about a business enterprise, it becomes convenient to achieve goals and further, expand business plans by receiving monetary help. However, gathering money is a daunting job for startup owners. After all, building others’ interest and trust in one’s business is not an easy task, specifically for the early-stage business.
Is Venture Capital Helpful for All Types of Startups?
According to Venture Intelligence’s report, Series A investments by venture capital firms have surged by 23 per cent from $411 million to $505 million in the first six months of the current year (2019). The comparison was made reflecting on investments in the initial six months of 2018 and witnessing a similar period in 2019.
Seeing a rise in VC investments, it can be deduced that venture capital firms readily give monetary help to the companies. Before presuming it further, it is important to understand the nature of VC firms and how they function.
While scouting options for financial backing, venture capital firms seem to be a preferred option for early-stage companies. In essence, venture capital firms approach affluent people in society and amass money from them. This money later gets invested in startup companies, after ascertaining their potential and possibility of success. The invested sum is offered on an interest which startups have to pay in a decided time.
When startups pay back money to VC firms, the accrued interest rate is considered as income of VCs and the remaining portion is paid to wealthy individuals. Nonetheless, the interest rate is comparatively higher than banking institutions and in turn, puts more burden on the startups.
Considering different types of business, venture capital could not fit in all situations and thus, entrepreneurs should look for other available options.
Gather Funding from These 3 Sources
Apart from venture capital, there are some other proven ways to acquire funding for startup companies. The startups can use below-listed methods to gather a large sum of money to scale their business.
According to Statista’s report, “Transaction value in the Crowdfunding segment amounts to US$1.7m in 2019. Transaction value is expected to show an annual growth rate (CAGR 2019-2023) of 0.6 per cent resulting in the total amount of US$1.8m by 2023.”
In crowdfunding platforms, a startup sells off its business idea and promises to turn it in reality if it gets funded adequately. Some of the prominent crowdfunding platforms are Ketto, Milaap, Wishberry, Faircent and so on.
Equity Crowdfunding is a part of crowdfunding only wherein people, who fund the company, acquire shares in return. Later, the earned profit of the company becomes distributed amongst all stakeholders. This form of crowdfunding can be also practised on above-cited crowdfunding platforms.
On the surface, angel investors work like venture capitalists. However, the only thing that distinguishes them from VCs is their independent nature. Unlike VC, angel investors entirely scrutinise a business and then make a bet. Thus, it can be said that angel investors are not driven by a motive to earn income.
After ascertaining a potential business, angel investors not only invest in the business but also mentors it from time to time. Some of the popular angel investment platforms are Seed Invest, Angel India, Lets Venture and Gust.