Startups are the major form of entrepreneurship that has taken over the sector of businesses. It has become a gateway to setting up new businesses, and also inculcating new innovative ideas in businesses. To make it to the startup culture, a young, aspiring entrepreneur will need a proper plan and an idea to be executed. The startup plan’s execution is fundamentally based on the funding of the startup by different sources.
Some studies suggest that more than 90% is of the startups fail to sustain themselves after the second round of funding. Hence it is one of the major reasons for the failure of young entrepreneurs and their startups. Capital for business fuels and the revenue generated is dependent on it. Then the only question that remains with the young entrepreneurs is ‘How can I fund my startup such that it sustains?”
A guide to obtaining capital is shown below:
| Crowdfunding | Self-Funding/Bootstrapping |
| Angel Investment | Venture Capital |
| Business Incubators | Winning Contents |
| Business Loans for Startups | NBFCs |
Let us look at each one of these and understand which one is the best choice for a given situation
Table of Contents
1. Business startup through Crowdfunding
This is a new way of funding that has been used widely throughout the world. This is a great boon for startups. It is similar to availing a loan, but it is availed through more than one investor. The idea of crowdfunding is completely dependent on the business ideas of the startup that is proposed.
The young entrepreneur will put up a detailed account of their business plan and idea on the crowdfunding platform (Kickstarter.com is a good crowdfunding platform). All the ideas, the goals, the plan, the profit margins and the agendas have to be meticulously provided in the description. The more attractive the description, the more the number of investors will be willing to fund the startup plan.
The business loan is not exactly a loan, but it can be a pledge to pre-order the product proposed by the startup, or make a donation in good faith and promotion.
Crowdfunding as a form of business loan for startups is a great option as it also acts as a source of marketing, complementary to funding. It provides you with a chance to put up an idea without any loss and leave the financing to chance and good luck.
2. Business startup through Bootstrapping
This is another great way of funding your startup. It is in essence, a way of self-funding where you avoid business loans and investors at the very beginning of the startup. This will automatically mean that the young entrepreneur should have some amount of savings by his/her side and potentially friends and family members who can lend money.
An advantage of this the fact that the borrowing of money from family and friends will have the flexibility of rate of interest and also there would be not many formalities.
If your capital requirement is very high, then you may avoid this approach of funding. This method requires saving your own money and one must be careful while utilizing this option.
3. Startup loan through Angel Investment
Another way of availing funds for your new business startup endeavour is by requesting funds from all angel investors. Investors like these are already successful business entrepreneurs who have surplus funds from their businesses and are willing to invest in new ideas and hence startups. Also they work with groups of different individuals and networks and test proposals before they sanction their investments. Advise and guiding is also some of the features of Angel Investment.
The funding that is received through this option has helped multi-billion-dollar industries to start and flourish including Google, Alibaba, etc. This form of business loan helps the young entrepreneur at the early stages of the startup and the investors expect at least 30% equity in return. This is a very high expectation of return and is surely a negative point for those looking forward to Angel investment as a way of obtaining a business loan for their startup.
4. Funding of Startup through Venture Capital
These resources for capital funds are the biggest funds you can avail from all of the options mentioned. Venture Capitals or Venture Capitalists provide all sorts of mentorship to businesses and also can act as a test for understanding the fate of the business; whether it is going forward or is faltering.
The utilisation of these business loans will be more appropriate when your startup is making a lot of revenue, and is not in its startup phase.
5. Startup through Business Incubators
Business incubators, also known as Business Accelerators are programs that are available in almost all major cities and they help in providing supports in business startups.
Incubators are business nurturing entities which provide business tools of supports and networking to a business set up. An accelerator does nearly the same thing but also help startups and businesses to take risky and important decisions, that will help them prosper.
6. Winning Contests for funding
There are a lot of contests that go around in the sector of startups and entrepreneurship and they help in raising funds for small startups. These competitions are based on the ingenuity of the project proposal and innovative ideas that stem from these business startups.
The young entrepreneur needs to make a business plan or make a product that can help the market. Also, the winners of these competitions get coverage by the media, in circles of the entrepreneurial sectors and also the legitimacy of providing innovation.
7. Setting up startup through business loans
The traditional but robust way of doing business also applies to various startup endeavours. There are two ways of availing funds, one is through business capital loans for startups and another is funding Working Capital loan will require you to run at least one cycle of all the generations of funds and profits (revenue) and then the term may continue after the profits are sufficient.
Funding includes discussing all business models and plans with the bank and then the eligibility of the loan is tested. If eligible, the loan is sanctioned. All major banks, like SBI, ICICI, Axis provides such funding.
8. Business loans for startups through NBFCs
Non-Banking Financial Companies are companies that can help new startups avail loans very easily. The eligibility criteria for business loan for startups is lenient, compared to loans from actual banks.
These ways will suit a situation as you might analyse your business and startup setting. Taking the correct step will make your startup prosper to a great extent.