blog / Entrepreneurship
A Step-by-step Guide to Get Your First Business Idea Funded
It’s a strange thing to think that, while you search for career-defining job opportunities, check out updates on LinkedIn, or boost your social media presence on Instagram, these ubiquitous platforms are all tremendously successful startups. There are more where those came from too: Airbnb whose three founders started by renting mattresses; or India’s biggest lifestyle beauty and fashion platform, Nykaa. Entrepreneurship isn’t a new phenomenon, of course. However, the startup culture has captured the imagination of many would-be entrepreneurs now more than ever. So now, everyone wants to know how to get funding for startup businesses.
How to become your own boss?
‘How to become an entrepreneur?’ has become an internet catchphrase, but for all aspiring entrepreneurs, it needs to be so much more. You need to know how to navigate this journey, be aware of the risks, prepare for disappointments, and strive for success. Here’s a quick lowdown touching on the main aspects about how to become an entrepreneur and how to get funding for startup business ideas.
How to get started with a startup idea?
All great things begin with an idea, so figure out what it is that you want to do. It could be a gap you’ve noticed in the market, a consumer need that is not yet addressed, or a daily-life problem or hassle that you encounter. For instance, Uber or Ola being an answer to public transport difficulties. Then make sure you see the viability of the idea, its scalability, the competition in the market, etc. Then, be sure you create a business plan that you can show investors when you look at avenues to fund your idea. If at all possible, create a prototype that you can get feedback on from your target audience. It goes a long way in helping you work out any kinks or glitches.
Then comes the challenging part—raising the funds.
How to get funding for startup businesses?
There are many types of funding options to finance a startup dream:
To begin with, putting your savings into your business could be a good idea if you have the money to spare. A word of advice though—don’t let go of your day job just yet!
#2: Bank Loans
Think business and the first stop would typically be either a public or private sector bank. It is the most convenient, structured and tried-and-tested avenue for raising capital, either a term loan or a working capital loan. But check out the interest rates, amount, and repayment plan before committing to this course.
#3: Non-banking Financial Companies (NBFCs) and Micro Finance Institutions (MFIs)
If a banking loan doesn’t work out, there are always NBFIs and MFIs that can help. But, the asking interest rates from these tend to be higher than public sector banks. So, opt for this only if you are sure that your business will become profitable very quickly.
#4: Angel Investors
Some individuals have the money to spare and are always on the lookout for startups in which to invest. These angel investors, as they are called, typically end up looking for higher returns to the profit, so the risk is more than if you go to a financial institution for funding.
Crowdfunding refers to financing acquired through multiple sources through online platforms. This can be for social causes, business, or disaster relief, among other reasons. Well-known ones include Kickstarter, Ketto, Fundable, Wishberry, etc.
#6: Peer-to-peer Lending
In this financing option, you take away any intermediary and go straight to source. The lender will give money to the borrower at an interest rate that’s higher than banks or NBFCs. This kind of a ‘loan’ becomes an investment by the lender in the borrower’s business.
#7: Business Credit Cards
Here’s an interesting spin-off of the fast-mushrooming startup industry—the business credit card. This should ideally be considered for businesses that don’t need too much of an investment at the beginning.
What are the stages of funding: From pre-seed to full bloom
So, you’ve decided to go full steam ahead with your idea and you’ve got the details on how to get funding for startup ideas. Now it’s time to know the stages of funding. But before this even begins, there is something known as valuation, where experts analyze the company looking for finance, based on certain parameters—the management, its ‘track record’ if the company has been doing business, market size, and the risks involved. The stages of funding result from this valuation and also influence the types of investors.
This is when the company is just about getting off the ground, the early stages in the birth of the company. Pre-seeding is generally, more often than not, provided by the founders themselves, or close family and friends. At this stage, investors aren’t looking for equity in the company as they often happen to be the founders themselves.
This can be considered the first ‘official’ funding that a company raises in exchange for equity. This seed capital is given to a startup to finance the early stages like the development of a product or carrying out market research. Here, investors go beyond the family to venture capitalists, angel investors, etc. For some startups, the money raised at this stage is all that is needed to set things in motion.
#3: Series A, B, and C Funding
Following this come the Series A, B and C stages of funding for companies that have now an established presence in the market and are now looking to scale up operations, depending on the stage of growth that the company is in and its requirement.
What you shouldn’t do while getting funding?
Now that you’ve got an idea about the funding process, you should also know the pitfalls to avoid.
#1: Asking for too much or not asking for enough funds
Both options can be problematic. This is a tightrope to walk because if you ask for less and you won’t have enough to get things rolling, pay salaries, etc. And if you ask for too much, then that would come with pressure from the investors. So, carefully consider how much you need, or better yet, get professional advice.
#2: Not having a scalable plan is a definite no
You should have some idea about short-term goals, and a long-term vision too. A strong foundation for a startup is what the investor is looking for.
#3: Giving up too much of your company’s stake is a no-no
It’s a good idea to retain control and not have too many opinions that steer the company where you don’t want it to go.
#4: Not researching the investors
It is the investors who are pouring the funds into your startup. It’s always good to know who you’re dealing with.
#5: Raising funds too early can also be a problem
Be sure about the timing so you’re sure about how much you need, and what you’ll need it for. Always be prepared for the long haul and most importantly, stay on course and stay patient.
#6: Don’t give up after the first rejection
If you believe in your idea, keep at it and brainstorm about how to get funding for your start-up. They say all bestseller books were rejected by their first publishers. The same is true for startup companies.
If you want to cover all bases, then check out these online entrepreneurship programs. These programs will teach you everything you need to know about how to become an entrepreneur and take a deep dive into the types of funding choices out there.
The lure of being your own boss can cause you to leap straight off the job ramp and off-road into risky yet rewarding entrepreneurship. But if you arm yourself with knowledge and information, then the rewards will outweigh any amount of risk.
By Gauri Kelkar
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