Funding is the most crucial thing to turn your innovative business idea into a reality. Most of the entrepreneurs are unfamiliar with investment raising process so raising capital to get a startup off the ground is one of the hardest thing an entrepreneur will have to do.
When faced with challenge to raise capital, it can get helter-skelter due to inexperience. So,an entrepreneur should use his/her creative abilities for finding innovative ways to provide the start-up with cash infusion. Some of the ingenious ways to to raise capital for initial investments:
- Business Angels:
Angel investors are Individuals who invests their own capital in startups and in exchange hold some part of equity ownership in the business. They are given this name because they usually don’t take a substantial amount of equity when investing. Generally, business angels are older entrepreneurs with successful careers that are trying to help others establish their careers. They are always on the look out for new, creative businesses that they can invest in which makes them the most sought after funding option for startups. Angels are unbiased investors whose focus are more the individuals than businesses, and they bet on the entrepreneur competence.
When new entrepreneurs choose business angels for providing capital, they also get mentors in their form.They bring their wisdom, experiences and vast business network to the table with the sole purpose of helping other succeed as well. For an entrepreneur whose not primarily motivated by money, angel investors are the perfect match because this will create synergy and a combined growth centric approach.
Business angels are not limited to initial startup investment, they can have a more long-term relation of providing finance injections especially during hard times (well earning their name).
Startups especially those in need of relatively smaller investments can find business
Angels (are comparatively harder to find) on various online platforms like their specific websites and association.
Venture capitalists are another type of investors with large amount of money in hand. They’re ideal businesses are innovative startups with great growth potential and promising returns.
Unlike business angels, venture capitalist ask for a larger share in equity which is justifiable as they are investing relatively larger amount. VCs have a more profit-centric approach and therefore demand for more control and power in businesses to express their opinions and contribute in decision making for increased revenues. Apart from large sum of money, venture capitalist are great business partner and experienced guide with extensive contacts in business world.
Ideally, entrepreneurs should try to reach VCs through business contacts (Social networks). If not, they can try their luck on their association websites or social media groups ( Even if solicit). Once you get in touch with VCs, its time to stand out with a unique,detailed and viable business plan. Your chances of securing a better investment depends upon your confidence regarding the business idea and how you present it. Remember, execution is the key!.
There is no hard and fast rule about finding the right VC and the ideal amount to obtain. Its therefore imperial to pinpoint those who have more aligned approach with the startup. According to statistics, microscopic amount of startups are able to acquire these investments. But once you get them onboard, your startup will flourish at the double. Another alternative is Venture Capitalist firms in which money is pooled from various sources to invest in entrepreneurial startups.
Bootstrapping is a source of generating seed money for a startup without any investor. You use internal financing to generate funds for starting business operations through cost-cuttings and inventiveness. Entrepreneurs set a tight budget to operate with and then reinvest the cash flows generated. And sometimes bootstrapping is done out of sheer necessity. This method has gained popularity in recent years as the expenses of kick-starting new startups are becoming lesser every passing year and today with global pandemic they are at lowest.
With no external investors, you retain all the claim in equity ownership and thereby the profits generated. Its an ideal solution of funding when the entrepreneur want to have full control over the creative decision making and want to take the company in a certain direction. Once you have decided to bootstrap your startup, first thing is to decide the minimum amount of money you can make work. It may feel overwhelming at first especially for new entrepreneurs, so try to be in touch with some experienced people who can provide guidance. To be on a safer side, if the entrepreneur has a job, he should practice bootstrapping and conduct due diligence alongside.
It is the most contemporary approach in business funding. Through crowdfunding, capital is raise through pooling investments from various different investors instead of one investor or firm. What makes it the most modernized method is that it works through digital platforms. There are various online sites where you can start the crowdfunding by floating the innovative business idea and setting the funding goal.
Crowdfunding can be of three types:
- Equity based (share in business ownership is given in exchange)
- Debt based ( pay back in installments to individual lenders)
- Reward-based ( giving reward in form of product/reward in exchange for investment)
Its important to remember that this is a time-taking process so be patient and work hard for marketing your campaign in a way that will entice people to invest and create demand for product.