Today’s generation is being universally felicitated for its ambitious, go-getter attitude and its courage at not letting financial constraints stand in the way of career goals. New enterprises and entrepreneurs are a vital sign of an economy’s health.
There are many ways to get your plans across to a huge audience of investors. But you would still have to convince potential investors of the viability of your plans, especially, if you have no prior business experience but it pays to explore all the options you can tap for sourcing of funds.
One of the most respectable and obvious methods to start a new business is by paying out of your own pocket, otherwise called bootstrapping. This is clearly not a simple task because it may require you to save over time or use funds earmarked for a contingency. However, if done right, rapid success is a natural consequence and you will find plenty of investors in no time.
In case your startup needs large capital funding, associating with a partner who has deep pockets is a safer alternative. By one estimate, 28% of all globally renowned business entities had co-founders precisely for this reason. However, you must ensure that your partner’s commercial goals are the same as yours.
The most democratic method to raise money is called crowdfunding. As an entrepreneur, you can propose, pitch, and put up detailed business plans etc on a crowdfunding platform. Users of the platform can read this information and if it strikes a chord with them, pledge money or pay any amount as a donation. Because millions of people access the site daily and across geographies, you are more likely to find supporters if your cause is well presented.
Venture capitalists (VCs) are organisations that have a corpus of pooled funds from a number of members or the public. They typically scout for promising startups with a high growth potential. They buy equity in your firm in exchange for funds. It may so happen that the market for your product is not as remunerative as required by VCs. In such a case, there are other sources of funding more appropriate, such as crowdfunding.
Another variety of financiers are Angel Investors, who may be individuals or groups with surplus cash. They may be successful businessmen with an interest in supporting upcoming startups.
If you live and operate in a major city in India, your search for funding is likely to lead you to platforms called Incubators and/or Accelerators. The sole purpose for their existence is to guide businesses in the very early stages.
Incubators allow startups access to space, training and value chain networking in a bid to help them develop. Accelerators simply do the same thing on a larger scale and often help existing businesses reach maturity faster.
A case study
The Jain International Trade Organization (JITO) is a body of successful Jain businessmen, knowledge workers and professionals covering various fields across the globe. It organises a programme called ‘Investor Pitch Day’ in various metropolises in India, where JITO’s Angel Network hears pitches and presentations from high potential candidates while others participate simply to learn from the experience. Altogether, JITO has received $3 million worth of proposals of which $1 million have so far been executed.
The options discussed above are relatively new age and easier to access. However, banks and microfinance institutions have traditionally been there to help with either working capital or initial funding. There is still room for qualitative evaluation and the process may not be altogether objective. Virtually, every bank in India provides financial assistance to new enterprises in one form or another.
Apart from banks, the other authoritative option to meet funding requirements is the Pradhan Mantri Micro Unit Development and Refinancing Agency Limited (MUDRA). This public fund is disbursed to entities in the micro enterprise sector. Like with other sources of finance, you must submit your detailed business plan and if that gets approval, you will be sanctioned a loan.
You will obtain a MUDRA card, which functions like a credit card with which you can purchase raw materials and meet other operating expenses. This grant is, perhaps, the best option if you qualify for it.
(The writer is Founder Chairman of ICA Edu Skills and a mentor, advisor investor to multiple startups in EdTech)