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4 Realistic Ways To Fund Your Startup

Author: S. Vishwa
by S. Vishwa
Posted: Apr 17, 2020
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4 Realistic Ways To Fund Your Startup

According to a recent study, more than 94% of new businesses fail during the first year of operation. The lack of funding becomes one of the most common reasons. Money is the lineage of any business. The long and meticulous, exciting journey from idea to revenue generation business needs fuel called capital. That is why, in almost all stages of the business, entrepreneurs ask themselves: how to finance my startup?

Now, when you would need financing depends a lot on the nature and type of the business. However, after realizing the need for fundraising, below, we present some of the different sources of financing available.

One Form of Self Funding- Bootstrapping

Self-financing, also known as bootstrapping, is an effective form of financing for startups, especially when you are just starting your business. Beginning entrepreneurs often have trouble getting financing without first showing some traction and a plan for potential success. You can invest with your own savings or get your family and friends to contribute. This will be easy to increase due to less formalities / compliance, as well as less increase costs. In most situations, family and friends are flexible with the interest rate.

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Popular form of funding- Crowdfunding

Crowdfunding is one of the most recent ways to finance a startup that has been gaining a lot of popularity lately. It is like taking out a loan, pre-order, contribution or investment from more than one person at the same time.

That's how crowdfunding works - an entrepreneur will give a detailed description of their business on a crowdfunding platform. He will mention his business objectives, plans to make a profit, how much financing he needs and for what reasons etc., so that consumers can read about the business and give money if they like the idea. Anyone who donates money will make promises online with a promise to pre-purchase the product or make a donation. Anyone can contribute money to help a company they truly believe in.

Indiegogo was the first major crowdfunding platform and has raised more than $ 1 billion since its creation in 2007. In 2015, the platform funded more than 175,000 campaigns with contributions from 2.5 million people in 226 countries.

Indiegogo has no prohibitions against humanitarian projects related to causes and also offers a "flexible financing" option that allows you to collect all your donations, even if you do not reach your goal. The company keeps 5% of all money raised, regardless of whether you reach your goal or not. There is also an additional 3% fee plus $ 0.30 per transaction for all credit card contributions. There is also an option for investing in shares offered in partnership with MicroVentures.

Professional way of Funding- Venture capital

This is where you place the big bets. Venture capital is a professionally managed fund that invests in companies with enormous potential. They generally invest in stock deals and leave when there is an IPO or an acquisition. VCs provide experience, guidance and act as a litmus test for where the organization is going, assessing business from the point of view of sustainability and scalability.

A venture capital investment may be appropriate for small businesses that are beyond the start-up phase and are already generating revenue. Fast-growing companies like Flipkart, Uber, etc. with an existing exit strategy, they can earn up to tens of millions of dollars that can be used to invest, network and grow your business quickly.

LootCrate: LootCrate had more than 600,000 customers and $ 100 million in revenue before increasing institutional capital. Part of the reason they were so efficient was that the company started charging customers from the first weekend of existence. The founders were in a hackathon, set up a landing page, collected orders and used that capital to buy the nerdy goods that filled the packages.

Get financing from business incubators and accelerators:

Early stage companies may consider the Incubator and Accelerator programs as a financing option. Found in almost every major city, these programs help hundreds of start-ups each year.

Although used interchangeably, there are few fundamental differences between the two terms. Incubators are like the parents of a child, who nurture the company by providing shelter, training and networking tools for a company. Accelerators are more or less the same thing, but an incubator helps / assists / feeds a company while walking, while the accelerator helps to give / take a giant leap.

Y Combinator is considered by many to be the world's leading startup accelerator, having facilitated the success of Dropbox, Airbnb, Instacart, Weebly and Reddit. Founded by Paul Graham in 2005, Y Combinator has invested in more than 1500 startups for a total value of $ 80 billion. Located in Palo Alto, Silicon Valley, Y Combinator is run by a team of 40 people and receives about 13,000 startup applications via the Internet alone each year. The company chooses between 200 and 240 projects to support each year, adopting a very rigorous selection process. The investment is made through a standard contract known as SAFE and essentially represents a capital injection.

So I think after reading this article you have a sound idea of what are the ways of startup funding. I have also covered many terms related to this topic and also reference which will be a good source of help for understanding this concept well. I am sure that after reading this article you will know working and successful companies which flourished with the help of each of the types.

One of the example of financing from incubators is Finology ventures Pvt. ltd. They started from here and soon come with an turnover in lakhs. This all happen with a perfect funding and understanding of Stock analysis. So, yes Niche is really important.

About the Author

S. Vishwa is web marketing analyst at Finology Ventures. With 5+ years of web marketing experience, joined a Fintech company to help people to learn and earn more.

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Author: S. Vishwa

S. Vishwa

Member since: Apr 08, 2020
Published articles: 9

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