How Do I Fund My Startup?
90 percent of startups don’t see the light of day while only 10 percent of them survive the extremely competitive market. So, while you need an extraordinary idea to build a business, along with a plethora of resources that will make it work, you also need to know how to raise capital and find investors for your startup.
So, if you are a founder who is struggling to do the aforementioned thing, you have come to the right place to figure it out!
Here are the main things to keep in mind when you are planning to find capital for your startup.
1. Idea Stage
Firstly, let’s get this out of the way - all startups begin with an idea. So, when you are in the ‘idea stage’ of a business, this means that the entrepreneur is still figuring out ways to develop and refine the concept of their business and needs capital to achieve basic essentials such as making a detailed business plan, or even a website. One can find funds through personal connections during this stage.
During the idea stage, it can be a challenge for companies and entrepreneurs to acquire funds and find investors. To solve this problem, the founder tries to put in their own money from other sources of income to get the initial stage going. As risky it is to invest your own money, it also provides the entrepreneur with control over the business without any external interference. For small businesses, bootstrapping is a very smart way to go.
It also prevents you from debt in the initial stages of your business. So, in case your business does not launch or work out, you don’t owe any investor any capital. However, if the business does succeed, you would require more capital and will eventually have to bring in external funds.
3. Friends and Family
For the lucky ones, friends and family also become a source of financial support during the idea stage. The ones who offer you this assistance believe in your vision and want to see you succeed.
Investors who are close to you are often easy to take care of when you are just starting. However, taking money from people close to you can also bring in some tension if you are not able to use it judiciously.
While friends and family may not check up on you on a regular basis, they will expect a return on their investment eventually.
4. Pre-Seed Stage
During this stage, an entrepreneur requires extra funds to sustain current growth and validate their idea in the market. For this, the entrepreneur can rely on funding opportunities from the idea stage, as well as explore new external avenues.
Pre-seed is still finding its place in the capital fundraising market - usually, entrepreneurs put in their own money or acquire capital from close friends and family during this stage. This is quite similar to the idea stage.
5. Angel Investment
Angel investors who put in their money in startups are part of the private sector. These are individuals instead of private companies so these investments are smaller - somewhere around Rs 5 lakh to Rs 10 lakh.
Angel investors invest in the startup with the expectation of a high return on investment (ROI) and also play a prominent role in the day to day workings of the business. They usually ask for daily updates on the operations of the business. They can also ask for a seat on your board of directors if they put in more than the required amount.
6. Venture Capitalists (VCs)
Venture capitalists are part of the private sector. They have a pool of money to provide capital from corporations, foundations, pension funds, and organisations.
Businesses with consistent success in the market or the ones that have high potential for substantial growth can raise as much as $7 million - this depends on multiple factors.
Got an idea?