Exploring Different Funding Options for Startups

In today’s modernized business world one problem that is usually faced by newly established startups and businesses is “Fundraising”. Fundraising literally means raising and acquiring funds or capital to run and operate the overall operations of the business. These funds are spend in:

•          Effectively managing and controlling the day-to-day cash flow challenges.
•          Making capital investments.
•         Tedious product development processes/cycles.

The above said operations includes purchase of inventory, employees wages, running advertisement campaigns, purchasing machine tools and equipment, buying real estate, building and facilities etc.

Some sources of fundraising are:

         Personal Funds

Majority of the founders of startups contribute their personal funds along with the sweat equity. Sweat Equity is the time and effort of an individual being put into the startup. Another important fact of the matter is that major contributions in terms of funds to the newly established startups are made by family and friends of the founder.

Bootstrapping

Bootstrapping is the process of searching for cost-effective ways to launch and grow a business. Bootstrapping is usually done to avoid  the need of external financing. It involves hiring interns, leasing equipment instead of buying it or buying old equipment instead of new equipment to reduce the cost, avoiding unnecessary expenses etc.

 

Crowdfunding

Crowdfunding is a practice of raising funds for the business from a large number of individuals by providing them rewards or “Kickers”. Kickers are the gifts or discount offers for those individuals that are making contributions to the startup. These kickers ultimately energize the inner sight forces of individual to contribute in the business. Businesses do not have to sell equity in exchange of the funds being raised or gathered but discounts or gifts are provided to the individuals as the individuals are pre-buying/pre-ordering rather than investing or receiving equity within the business.

 

         Angel Investors

These are the individuals that invest their capital or funds within the newly established startups to help them as the main aims of an angel investors are to contribute in the betterment of society and  to make money. Such contribution can be seen in terms of:

• Youth and other age groups getting opportunities to start their own businesses
• Employment generation
• Promoting products and ideas that can prove to be beneficial for the overall society in the long run

 

         Venture Capital

It is a type of financing that investors provide to those startups that possess high growth potential in the long run. This financing is provided by cash rich investors, investment banks etc.

 

         Initial Public Offering (IPO)

The first sale of stock of a company to the public is said to be an initial public offering. It is an effective mode of raising capital investments when a company goes public i.e. when its stocks are traded at stock exchange.

 

         Commercial Banks

Commercial Banks are another important source that can help businesses in raising financing (in terms of loans) for their business activities. Banks are generally careful and cautious in taking risks whereas newly established businesses are usually risky in nature therefore the organization must have a brilliant business idea, energetic team, strong fundamentals, well-organized financial team, well defined financial vision and goals.

 

         Governmental Programs

There are various developmental programs initiated by governments to help newly established startups and individuals in raising financing for their business i.e. Kamyab Jawan Program and Youth Development Programs. These were some of the programs that were offering interest free loans to individuals and startups that had high growth potential.

In conclusion, fundraising for start-ups is an important tool that affects the overall financial positioning, organizational performance along with its short term and long term strategic  goals. Through proper research, you can understand the investor's mindset and behavior that can help you in acquiring investments for your startup.