Indian start-up ecosystem is lately emerging at a rapid speed. The umpteen numbers of players and the heavy funding requirements have further increased the challenges for the start-ups.
There are various regulations and controls which prove to be an obstacle while setting up a start-up business like government policies, competition, and economies of scale to control fixed costs, product differentiation to withhold market etc. Apart from these, there are a few brooding obstacles that a budding entrepreneur faces even before getting started which is the capital investment required for the business.
The very first option of raising capital should start with you. Your business is like your child and the initial huge sum of capital should come out of your pocket. But this is not always practical and implacable since most of the start-ups are owned by young people mostly college pass outs and they don’t have a lot of money to invest.
The below options should be considered to raise capital from external sources:
1 Friends, family, and acquaintances
This is considered the most hassle-free option because of low or no-interest rate loan and equity. Since family and friends also provide a flexibility to pay back the taken amount, there is a sense of freedom of operation which seeps in.
2 Banks and traditional lenders
Small business loans from traditional lenders (banks) can be a great option where the owner can get great terms and interest rates. It also depends a lot on the credit profile. One has to have a well-drafted business plan in place to ease out the process of lending. From a traditional standpoint, acquiring capital and improving your credit score can be attained by this option. Also, securing this loan helps other investors see that you’re an “authentic company.”
Crowdfunding is the process of raising money by persuading individuals to each give you a small donation starting from as little as INR 500. Once you get thousands of investors, you have some serious cash on hand.
There are lots of Crowdfunding options available. You need to do your research and select a reputable company. This is a less orthodox approach and it works wonderfully for many people. The terms and rates must be verified properly and also have a legal adviser along to be on the safe side in case of things going wrong.
4 Investment companies and angel investors
Angel investors are literally the angles who provide funding at initial stages of business. These investors are less informal rather much friendlier and fund the business on the basis of their good gut-feeling. One needs to have a great idea, proper strategy and plan in place to lure angel investors to come ahead and invest.
5 Venture capitalists
Venture capitalists are the investors who provide capital assistance to startup companies and help small companies in an expansion. They do not have access to equities markets. These investors fund in huge amounts if convinced by business models, valuations and growth trends. Venture capitalists look forward to investing in small companies because they expect a massive return on their investments if these companies are a success. Also, they have the expertise and vast industry knowledge and mostly invest for smaller windows with expectations of high returns.
6 Business incubators and accelerators
Incubators and accelerators both prepare companies for growth grow by providing guidance and mentorship, but in slightly different ways and, and more importantly at different stages in the life of the business. Incubators nurture the business by providing shelter tools and also training and network to a business. Accelerators help a stagnant business to run or take a giant leap.
7 SME lending
SME finance is another non-traditional way of funding small and medium-sized enterprises and represents a major function of the general business finance market – in which capital for different types of firms are supplied, acquired, and cost or priced. Every bank or NBFC have their own processes around the application procedure to acquire the loan.
Grants are non-repayable funds or objects given usually by government or a trust to a business or an individual for the successful operations. Businesses in certain lines of operation such as research and development should approach and enquire for government grants or aids. Various schemes are run by the government to promote these industries.
9 Winning Contests
There are a lot of start-up contents which happen in India the most popular of which is Nasscom’s 10000 startups, Microsoft BizSparks, Conquest, Lets Ignite etc. To be a part of these competitions, one needs to make a project that stands out and convincing enough to be worth investing in. Winning these competitions help the entrepreneurs in both fund-raising and media –coverage.
10 Other ways to raise capital
a) Product Pre-Sale: An amazing way of raising funds for your business is through product pre-sale before launching your products officially. This builds consumer confidence in your brand and allows you to size up the demand for your product before its official launch.
b) Selling Assets: Selling your assets in your possession that have high financial value, can effectively serve as an immediate source of funding for your startup.