Mostly small startups fail at their early stages. The major reason behind this is the unmanaged funding procedure for small startups. To grow any business, money is the lifeline. For this lifeline, funding for startups from various sources is very important. As petrol & diesel is the necessary fuel to run a vehicle, similarly capital works as the fuel to your business.
This is why every entrepreneur needs to know & learn the perfect procedure to raise funding for his/her business or startup.
Know About Funding Procedure for Small Startups in India
The funding procedure for small startups in India typically involves several stages:
Self-Funding Procedure for Small Startups
Self-funding or self-financing is using your savings or capital to start a business. It is a very fruitful method to finance a business, especially if your business is at an infant stage. New starters generally face difficulties in securing external funding without revealing some initial drive and own capital. Using your capital at the initial stages makes investors believe in your capabilities of managing and developing your startups.
For self-investment, also called bootstrapping, you can take the help of your friends & family members and start a combined or shared startup. This step needs less paperwork and formalities and less interest rate as family members & friends are lenient about it. Hence, it is much easier to raise funding for your startup with this method.
Self-investment in self-funding is preferably considered the first choice due to its easy procedure and many advantages. Moreover, when you use your capital, you become more conscious about that and try to put your best into growth & development and nullify losses. Investors also start taking an interest in the business once they see it growing independently. However some startups need heavy capital from the very first day. Self-funding may not be soothing for these businesses and can be a huge risk. In this condition, it is not a good choice.
Funding for Small Business through Crowdsourcing
Crowdsourcing is also known as crowdfunding which is a well known source for having simple funding for small businesses. This is a very new technique of fundraising. Crowdfunding includes loans from the bank, donations, shares, investments from several individuals or groups, pre-orders, etc. There are various crowdsourcing platforms where entrepreneurs publish well-defined descriptions of their startups. They also discuss their business goals, strategies for profit generation, the amount needed via funding, and for which idea funding is needed. Individuals or groups who are investing their money promise to pre-purchase products. Any person can invest in new startups who want to help and have faith in the growth & development of these businesses.
The major advantage of crowdfunding is that it not only helps raise funds but also builds up people’s interest and markets your products. It is very encouraging for new startups to have a good demand for their products in the market. This also saves startups by removing professionals, mediators, and brokers.
Funding for Small Companies from Private Investors
Persons with excess cash and interest in investing in startups get some rights as owners. These are also known as angel investors. They also work with a group of investors to review several proposals before investing their capital. In addition to capital, they also provide mentorship and advice.
Many prominent companies, including Alibaba, Google & Yahoo, have taken the help of these private or angel investors. The only disadvantage is that these private investors invest less capital than in crowdfunding.
Funding for Small Firms from Venture Investors
Venture investors are professionals who invest in firms having greater prospects. These investors not only invest capital but also evaluate the business’s performance, techniques, and expertise.
These investments are for startups now entering the developing stage and producing revenues. Moreover, venture investments have a few drawbacks too. Venture capitalists have little room for corporate allegiance and generally recoup their capital within 3 to 5 years. If your startup has long-term goals of development, then these investments won’t work for you.
Accelerators and Incubators Funding for Small Startups
Startups can choose accelerators and Incubators for fundraising. These programs are located in big cities and help many startups to develop. Although accelerators and Incubators are identical, there is a slight distinction between both terms. Incubators provide networking tools to startups and nourish their business. Accelerators provide a pace for the growth of the business. While incubators enhance and nurture the business, the accelerators help to take big jumps and fast growth.
Funding for Small Businesses from the Bank
Generally, when entrepreneurs think of financing, they first choose bank loans as an option for fundraising. These loans are required to run a full cycle of revenue generation. These loans are beneficial for fundraising as interest rates are very low. To get loans from the bank, starters must submit a complete vision of their startup and a roadmap on which they will work.
In India, generally, all the banks offer this facility of providing business loans to startups and MSMEs. ICICI Bank, Bank of Baroda, HDFC Bank, and Axis Bank are some examples.
Startup Schemes Offered by the Government To Provide Funding for Small Startups
Around ten thousand governments initiated around ten thousand crores in startup funds in the financial year 2014-15. This was a major step in encouraging entrepreneurs to set up new companies. After this, many scenes were also launched for the same. MUDRA Scheme, which stands for Pradhan Mantri Micro Units Development and Refinance Agency Limited, was launched to provide loans to new startups. Similarly, the Startup India program was also launched with the same motto.
Besides the central government, the state government also launched schemes for small businesses. Maharashtra Centre for Entrepreneurship Development, Rajasthan Startup Fest, Kerala State Self Entrepreneur Development Mission (KSSEDM), etc., are some examples of state government initiatives.
Conclusion
Funding procedure for small startups is very important for new startups for their growth and development. Startups to develop quickly need external sources to fulfil the funding for their small startups other than self-investment. Without continuous capital investment, the new startups can’t sustain themselves for the long term in the market. For fundraising and capital enhancement, the starters need to evaluate how small an amount they need at a point in time. According to this evaluation, they need to select wisely the source of capital for their businesses.
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