How‌ ‌to‌ ‌get‌ ‌funding‌ ‌to‌ ‌start‌ ‌a‌ ‌business?‌

Without appropriate finance, Startups tend to collapse. This is the reason why entrepreneurs look for financial backing from the right sources. Here’s a simple breakdown of some of the popular Financial Models which will help you to raise funds for your Start-up:

1. Bootstrapping

For early business start-ups, this method of raising capital is pretty common. Bootstrapping is building a company from the scratch. However, an entrepreneur would not depend on other sources of finance. The only source of finance would be the personal savings of the entrepreneur. This method is one of the easiest and ordinary ways of raising funds for a Start-up.

In this method, you basically utilize your own savings to run your business idea. These funds might come from personal savings, mortgages, low or no interest credits, and lines of credit on your home.

If you are setting up a Start-up, then you must have some assets or savings that you can use. Funding the start-up on your own is a good way to tell your investors, how much you trust your idea and it speaks highly of your confidence.

Investing your personal money in the startups demonstrates that you’re willing to take a risk that supports your idea and increases your faith in the company. However, there is a huge amount of risk in choosing this method.

By self-funding you will have total control of your business. You do not have any third parties on your board, no lengthy agreements to sign, and no monthly reporting requirements. Bootstrapping is a method of managing your resources with your own personal savings. However, the resources are used for the development of the company.

Bootstrapping will help you to optimize the use of resources you have and wait till the point you can command a better valuation for your business.

2. Friends and Family

This is probably the best way to raise some money for your start-up. As your relatives and family are well aware of your talents and education, they will be more than willing to help you no matter what your idea is. They understand your potential and will provide you with a fund to start your business.

This might be the safest and appropriate way for you to collect funds as they care for you but it’s not good if they lose their money as it might harm your relationship with them. Apart from this, taking credit from your friends and family may provide you with sufficient resources to run your start-up. However, such funding may be limited in terms of amount. The main aim of running your start-up is to achieve some form of break-even for a period of 12 to 18 months.

That is why looking for someone in your family or friends circle who has good knowledge of the area of your business and the risks involved is a good start for funding.

Regardless of all this, you must always act like a professional when you are discussing investments with them, and while they are considering to invest, you should clearly spell out all the risks involved with the investments and then let them decide whether they want to invest in your idea or not. It would always be advisable to have the terms of the investment drafted in an agreement.

3. Seed funding.

Seed money, which is also known as the initial money which is pumped into a Start-up. It is a form of security offering in which an investor invests capital in a Start-up in exchange for which the Investor acquires an equity stake.

As the name suggests, Seed Funding refers to an early investment that is meant to support the Start-up until it generates cash of its own to facilitate a system to take in more investment for its operations. Seed funding is given when the entrepreneur explains the idea of the business to the investor.

Anyone can be providing Seed money. It can be your friends, your family members, angel investors, or a bunch of people through crowdfunding.

Seed funding is considered by investors the riskiest stage of funding. Hence the dilution (ownership by the investor in the company) may be on a higher side.

4. Angel Investors.

Due to Shark Tank and ABC’s show, Angel investors are a pretty popular means of raising funds. Usually, Angel investors contribute millions to Start-Ups as a source of investment. Angel investors can either be a pool of investors that contribute capital or it can be a company that is set up as an angel fund. You can easily find the right investors at the right place with the help of Angel investors, but only if you do it properly.

Examples of connecting with individuals are through getting in touch with them on LinkedIn groups, other Social Media platforms, and through different Website’s Blog posts.

Looking for Angel investments might prove to be a good choice, but it’s not for every businessman as some Angel Investors require quick returns on their investments and might also ask for control over the management of your business.

Try to look for someone who is in the same line as your idea when considering angel investment. Focus on such investors who have experience in your target audience. They can prove to be a valuable source of experience and mentorship

5. Crowdfunding.

Crowdfunding is a method of fundraising, where you use an intermediary platform like Ketto, Milaap, and Indiegogo, to showcase the profile of your start-up and raise money from hundreds of individuals who like your idea. Such source is known as Crowdfunding where different individuals contribute through the same source. However, all the contributions would go towards your start-up.

In this way, you increase the chances of raising funds for a start-up that is working on a disruptive concept, difficult to convince a traditional venture capital firm.

However, the success of crowdfunding depends on how good you are at presenting your business plan. Quality must be focused while presenting your business plan to an investor.

6. Taking a Loan.

Taking a loan from a bank is yet another way of raising funds for your Start-up. It is a good way if you want to keep the management control in your hands during the initial stages of your business. For those who have complete faith in their idea taking a loan from a bank can prove to be beneficial.

However, keep the interest rates in your mind when considering taking a loan from banks and also if you need to give some kind of collateral. Double-check and the policies of the loan before taking it. Utilize legal help when approaching a bank for a loan to vet the policies.

7. Series Funding.

If you have reached a stage, where you can reach out to venture capital or private equity funds for your funding needs, then series funding must be considered. Based on the round of funding, it may be called Series A, Series B, etc. If you are raising funds in multiple tranches in a series of funding, you may call it Series A, A1, etc.

The amount you raise in Series round funding depends on many factors – the burn rate, the expansion plans, and the future hiring plans of the company.

Unicorns are born during the Series round of funding. Any Start-up which raised funding at a valuation of US$ 1 Billion is called a Unicorn.

Most of the cases Series round of funding will be from a professional Venture capital firm like Accel Partners, Matrix Partners, Helion Venture Capital, Nexus Partners, Sequoia Capital, etc.

These are the various funding options to raise funds for your Start-up. You just need to select the one which suits your business model and which will help you generate the maximum returns.

Conclusion

There are many funding options that are available for an entrepreneur. However, before choosing a funding option, it would be advisable to weigh the pros and associated risks with the mode of funding.

As a rule of thumb, always be professional when dealing with funding. When dealing with Venture Capitalists and Banks utilize lawyers to vet the policies before going ahead.