Different sources for raising finance:
- Bootstrapping / Self Funding
Bootstrapping or Self Funding generally includes your own savings or money that may be raised from immediate family , friends or relatives. This is the easiest way of raising finance as there is no formalities or compliance needs that one is required to take into consideration and along that it is far lesser cost of raising finance.
Crowdfunding is like taking loan from more than one person at the same time. Crowdfunders also sometime come handy in marketing the products alongside financing. This process of funding opens up a channel of investment for small investors. This type of funding may attract venture capital investment down the line if a company gains some initial traction. Some of the most popular crowdfunding sites in India are : Catapoolt, Ketto, Fundlined, Wishberry and Indiegogo
- Angel Investment
Angel investors are individuals with surplus cash and a keen interest to invest in upcoming startups. Angel investors look through multiple proposals before finally boiling down to the set of proposals where they see possibilities of generating high returns. They do also provide mentoring support to the startup. Some of the most popular Angel investors in India are : Hyderabad Angels, Mumbai Angels and India Angel Network
- Venture Capital
Venture Capital (VC) is more professionally managed and they make investment in those set of companies which have huge potential. VCs also do extend support as mentors. They always look into investment from a three to five year period. Some of the most well known VCs in India are : Sequoia Capital, Cannan, Blume Ventures, Accel Partners, Kalaari Capital, Helion Ventures, Bessemer Ventures and Nexus Venture partners.
- Business Incubators and Accelerators
Business Incubators nurture a startup extending tools, training and networks. Business accelerators also does the same. The only difference is that where the incubator ensures the startup takes careful baby steps in the initial days of the startup, the accelerators help startups in taking giant leaps once they are through with their initial set up stages. The most popular among them are CIIE, IAN Business Incubator, Villgro, Stratup Village, Amity Innovation Incubator, AngelPrime, TLabs.
There are a range of competitions that take place at different forums where one has to either prepare a business plan or build a product. Some of the most popular competition in the startup space are : Microsoft BizSparks, Conquest, Lets Ignite, NextBigIdea Contest, Amity Innovation Incubator etc.
- Bank Finance
There are essentially two types of finance that a bank extend a. Term Loan and b. Working Capital. The only challenge is that they would generally look for some vintage and security for the funds extended.
- Microfinance / NBFC Funding:
Microfinance is basically extending finance to those who generally come under the normal banking channel. NBFC (Non-Banking Financial Corporations) extend funding to companies who does not necessarily meet the stringent requirement of a Bank.
- Government Programs
The government from time to time extends different startup funds, schemes to promote entrepreneurship. Few of the most popular ones are 10000 crore startup fund, MUDRA, SIDBI scheme etc.
Creative ways of raising finance:
- From future potential customers
One may approach future potential customers and get them to buy the product that they will get in 3 months for a discount. In these 3 months you develop the product and pay for the development with the revenue from this client
- Getting money through events or workshops
Such events may be in the nature of educational workshops, entertainment, community event etc. which is relevant for your business. One may charge for the attendance in those event. This also leads to leads and awareness for the primary business and products.
- Funding business through full time or part time work
Work as a part-timer, freelancer in your industry so that you get paid to learn your industry and have money to put into the business.
Basics of raising finance:
- The funding efforts has to start early as it helps you from being desperate
- It costs time, effort and money to raise money
- Please understand the investment required with backup logic for the same
- You need to do cash flow forecast properly to know how much you need to the penny
- Show some sales to raise money. It shows that your business is definitely going to work. It shows that you have a viable business.
- You have to bootstrap initially to generate some sales first.
- Social Proof: No. of subscribers, engagement you have on facebook page, number of emails generated, number of views on your channel, traffic to your website etc.
- Try to gather Letters of Intent from your customers. You need 3-12 of these letters. You will get Letters of Intent if they like your product / existing relationship / actually intend to buy your product.
- Please never tell that there is no risk associated with your business. It shows that you are novice in your business. You have to say what initiatives you are taking to minimize the risk
What investors look into:
Concept + MVP (Minimum Viable Product) + Validation from 100 prospects + No. of paying customers + Large TAM (Total Available Market) + Validated customer acquisition strategy + Fast growth rate + Scalability + Repeatability + Team + Traction + Track Record
What shall be in the content of Pitch Book / Project Report:
- Purpose of your company
- Problem area that you are working on
- Solution that you are suggesting
- Why now is the preferred time
- Market Size
- Product proposed
- Business Model
- Value Proposition
- Customer Acquisition
How much money shall one raise:
- Enough to meet your milestones smoothly
- Enough to stay focussed for the next 12-18 months
- Murphy Buffer : Adequate amount as a buffer as something will go wrong as there would be some mistakes going along
- <30% dilution : Do not initially get into a situation where you would be diluted over 30%
FLY HIGH. FLY FAR. FLY FAST