5 Ways to Fund Your Next Big Startup Idea

No matter how great your startup idea is, one important element to guarantee its success would be its funding. From starting a startup to scaling it to success, funds are required in pretty much every step of business. Though most startups finance their companies with their own savings or by borrowing money from relatives and friends, these sources of finance are short-term and can only be implemented in the first few phases of the startup.

Raising funds for a startup is never an easy task. It can take days or even months to find a good source of funding. In this article, we will review some of the basic sources of raising funds which can help to raise money for a viable startup project.

1. Crowdfunding

Crowdfunding involves raising funds from various funders generally through a popular website specially designed for it. It brings together various funders and investors, which can help startup entrepreneurs to raise funds for their businesses.

The entrepreneurs through this source, get a platform to describe their idea and other important information about their startup plan. The funders then decide to invest in the startup, after thoroughly analyzing the product or service offered by the company.

Crowdfunding can roughly be of three types:

• Charitable, where the funds are in the form of donations,

• Debt-based, where the amount invested by the funder is returned along with some interest, and,

• Equity-based, where the funder or the investor gains some percentage share of the company in exchange for the funds invested.

2. Loans

Of course, if we are talking about funding a startup, the most traditional way to raise money needs to be included in the list. Loans can help to produce a viable startup business by providing funds for research and development, marketing and sales, hiring of employees, expanding product ranges, and so much more.

Source- TechFunnel

However, getting a bank loan for a new project is not as easy as it seems. The banks and financial institutions often hesitate to give loans to new entrepreneurs who have no historical credit record. To tackle this issue, the Indian government has provided various schemes to uplift and encourage startups in India. Some of these schemes provided by the government may include:

• The Credit Guarantee Scheme

• NABARD scheme 

• MUDRA Loan Scheme

• MSME Loans, etc.

3. Partnership

Partnership with a large existing corporation is another way of funding a startup, which can benefit both the partnering parties. It allows startup companies to access investors, customers or even employees. For the existing company, it can get access to explore a new market, present new ideas and work more efficiently by pooling resources with the startup company.

Such partnership helps to build the reputation of a startup company, providing the access to an already existing market, and a potential customer base and eliminating the need to look for funds at all times.

4. Venture Capital

By now, most finance enthusiasts would have come across the word Venture Capital, thanks to the super-hit series of shark tanks. The show provided a platform for the startup entrepreneurs to pitch their business ideas before some investors or otherwise called sharks, who then invest in their company if they like. 

Venture capital is one of the most helpful sources of raising funds for a startup firm. Venture capitalists not only aim to provide financial assistance to the company, but also provide their strategic assistance to the firm by introducing the firm to potential markets, investors or even employees.

Venture capitalists typically like to invest in companies, that share some common goals with their own companies and those that show some high growth potential in the future, in exchange for a percentage share in the startup company. This source of funding is very time-consuming, and thus the venture capitalists should be approached only after ensuring that the capitalists’ focus aligns with their company.

Source-RazorPay

5. Product Pre-sale

Selling products before their launch is another effective way to raise funds which are often overlooked. Pre-order sales can bring up cash in advance, which can be used to fund a startup firm. This technique apart from providing funds also helps to forecast the actual demand of the product, understand and review its shortcomings, and then work on those to provide a better-quality product.

If the products of the startup firm meet the expectations of these pre-placed buyers, it helps in forming a loyal customer base and expands it by forming a stable reputation for the company and its products.

Conclusion

For a startup to turn into a viable business, it is important that the entrepreneurs explore some outside sources of capital. Depending too much on your savings or on your connections, would not really help to expand your business and explore the available market opportunities.

However, one cannot conclude which technique is better than the other. Every firm has its own characteristics, its field of activities, and its stage of development. For some small startups, funds raised from their savings or connections would be sufficient enough to start a firm.

For some large startups, it might not be. Some firms might even raise money from a combination of different options available to them. So, depending upon your startup’s financial needs, you can select the most suitable source to raise money from this list, and leap your startup to great success.

Written by Paridhi Aggarwal