As per a report by Orios Venture Partners, Indian startups have raised $42 billion in 2021, up from $11.5 billion in the year before that. With proper impetus, business startups are booming in India. Finding perfect fundraising sources for startups is the job half done.
So if you are one of those enthusiastic minds with a brilliant idea, you know funding is the only challenge you need to ace to launch your business. Here are the best ways you can raise funds for your business idea.
How Can You Finance Your Startup?
Before you think about finding capital for your business idea, you need to create a business plan. Once you have evaluated the viability of your business idea and crafted a successful business plan, you can use that to attract investors.
The best ways you can do fundraising for your business are:
- Bootstrapping your startup
- Relying on Government schemes and programs
- Finding angel investors
- Venture capital
- Business Incubators and accelerators
- Business loans: From public or private banks, or NBFCs
Of course, the list doesn’t stop here. Peer-to-peer lending, NBFCs, contests with cash prizes, and availing business credit cards are also ways to find capital for your business. Let’s look at each of them below.
If your business is in its nascent stage, self-funding is probably the best way of financing it. In fact, most businesses bootstrapped before the team could attract outside funding. By opting for bootstrapping, an entrepreneur essentially is becoming a self-sustaining businessman, with dedication and internal drive to “pull one over a fence by their bootstraps.”
Great minds like Steve Jobs and Colonel Harland Sanders (KFC) started on their own.
The benefit of bootstrapping your own business is that you are investing in your idea. Investors find it impressive once your business takes off. Also, it may be difficult to get funds from outside sources in the initial stages of your business when your idea hasn’t materialized yet. To overcome that demotivating struggle, you can use your own savings for it.
Bootstrapping may not be possible for some enterprises that need large sums of funds initially. They might have to rely on other means of fundraising discussed below.
As the name suggests, crowdfunding means finding capital from more than one investor or source. It’s a relatively new way of fundraising that is gaining popularity, especially on online platforms. Crowdfunding is especially effective if your business addresses a cultural or social cause because you can create a campaign on that to attract investors or customers.
How Does Crowdfunding Work?
To begin with, you need to put up a detailed description of your business idea on a crowdfunding platform. It should include the goals of your business, target audience, your market analysis, and fund requirements.
If the consumers are impressed by your business or interested in your product, they’ll give money. The funding can come through donations or pre-orders on your product. If you are attracting investors, you can offer them a share of the returns or choose to pay them back the principal amount with an interest.
The main benefit of choosing to crowdfund is that it also introduces your product to the market and attracts attention to them. Crowdfunding is also an advertising campaign. You can understand the market response towards your product firsthand. The downside is that it is a very competitive place. So, make sure that your business plan is foolproof. Also, make sure that your crowdfunding campaign stands out.
Here are some of the crowdfunding platforms you can try: Kickstarter, Ketto, Catapooolt, FuelADream, Fundable, Indiegogo, Milaap, Wishberry.
As part of the government’s initiative to boost business and entrepreneurship in India, there are a lot of funding schemes available for a startup without any hassle. The startup initiatives that are undertaken by the government help Startups, SMEs, MSMEs, women entrepreneurs, and so on.
Pradhan Mantri MUDRA Yojana, 2015, is a loan scheme backed by the central government that gives up to 10 lakh rupees to small/micro enterprises (SMEs) and non-corporate ventures. They are given by Commercial Banks, RRBs, Small Finance Banks, MFIs, and NBFCs. You need to submit your business plan and wait for approval for getting the loan. In 2021, over 40 million accounts were given loans under the Pradhan Mantri Mudra Yojana (PMMY) scheme.
Finding Angel Investors
An angel investor, or a private investor, is typically an individual with surplus money willing to invest in your startup. These high-net-worth individuals will provide you startup funding in exchange for ownership equity. This alternative form of investment can expect higher rates of returns than banks or other creditors, but they’ll aid you in the initial stages of the business. Major angel investors in India are Indian Angel Network, Mumbai Angels, and Hyderabad Angels. Some angel investors also use Crowdfunding platforms like Indiegogo and Fundable.
Your friends and family members can also act as angel investors for your startup and be part of the startup funding. They may also share their expertise or monitor your economic growth.
Venture Capitals are essentially the opposites of Angel investors in the sense that the former only helps businesses that fared beyond the startup phase. But, Venture capital can help those kinds of startups that have financial requirements that crowdfunding, bootstrapping, or angel investors can’t cover.
To get funding from Venture Capital firms, you need to submit an updated business plan. They conduct a thorough analysis of the business model, products, operational history, and so on. This process is termed due diligence. Once they assess the risks against returns and find the investment viable, they will invest in your business in exchange for equity or ownership stake.
Venture Capitals take an active role in the company, monitoring and advising on its growth periodically. They also have a say in the functioning of the company, so you may have to relinquish some control if you are opting for this kind of fundraising.
Venture capital firms also exit the company within a three to five years window, when there is a merger, acquisition, or Initial Public Offering (IPO).
For an average business owner, business loans are the most viable option for getting funds for their business. As a startup, you can get business loans from public or private banks, loans under government schemes as discussed above, or get small loans from NBFCs or MFIs.
Banks provide two types of loans for businesses: term loans and working capital loans.
Term loans provide large sums of money upfront if you fulfill the criteria of the banks. You need to submit your financial statements for availing of money, and repayment is done on schedule with an interest. The ability to repay bank loans, especially large sums of borrowed money, is an issue you need to take seriously as a business owner. They may need big amounts of down payment to reduce the amount, especially in the initial intervals.
Working capital loans are taken for funding the daily operations of a business. It is not used to fund the business, as startup funding or for growth but only to meet the day-to-day monetary needs of the company. The amount of money lent depends on your company’s turnover. Companies with high seasonality or seasonal markets can use this loan to fund their seasonal needs.
What to do if you are not eligible for bank loans?
What if you don’t have enough credit scores to avail loans from banks? Or if your loan proposal was rejected by the bank?
Then, you can depend on Non-banking Financial Companies (NBFCs) and Micro Finance Institutions (MFIs) for funds.
Non-banking Financial Corporations are corporations that offer banking and insurance services without a banking license or without meeting the requirements of a bank. They provide a wide range of borrowing and saving opportunities without credit scores or financial statements. Interest rates are often higher in NBFCs than in banks.
Micro Financing is a type of banking service available to small business owners and entrepreneurs in rural underdeveloped parts of India. It can be availed by those who do not have access to traditional financing sources, including Public Sector banks. In this case, also, interest rates are higher than banks but they don’t require any financial statements.
Business Incubators And Accelerators
For businesses in their early stages, Incubators and Accelerators are a great asset to consider.
Business incubators and accelerators provide funding options for startups along with expertise, mentoring, material resources, and networks for your business.
Incubators help the business to be born and take off, while Accelerators help it take its first leap or achieve its Startup milestones. These are programs that take from 4 to 8 months in which you will get the push and expertise needed to launch your business.
Funding can become a cause for anxiety, especially if you are a start-up or a new business owner. But there are a lot of easy ways to get funds right at your fingertips. You need to be proactive in acquiring funds to propel your business into a success story. Also, the most important thing to focus on to get effective funding is your business plan. A successful business plan with a clear business strategy, market analysis, and steps to gain profit will definitely lead you to the right investors who believe in your business idea.
Effectively researching and choosing multiple platforms or sources for fundraising your new venture will go a long way while strategizing entrepreneurial plans. But for all this, you need the proper guidance and expertise in starting a start-up. Let us at Voila Experts help you with this. We have the best resources and can connect you to the leading experts and consultants in the industry.
Register on the Voila App now to connect with your perfect fundraising expert.