How To Raise Funds For Your Startup
- By Rahul Varshneya
- October 24th, 2012
Deciding to venture out on your own in the entrepreneurship world is probably the best decision that you could have taken. The path is replete with adventure and each twist and turn brings new challenges, new discoveries, new relationships, a sense of achievement, and all of this makes the journey itself worthwhile. But, starting up can also be quite daunting when you have to find avenues to raise capital for your venture.
There are many options that are available for raising money to start your venture or build your product. Coming up with an investment source is not easy, but following are some resources that can get you started.
Bootstrap: if there is anyway that you can bootstrap to build your product, do it. Bootstrapping essentially means that you raise money yourself through your existing job, savings, investments or alternate business. If your start date is at least six months away, start saving a towards building a fund each month. You will not end up with a huge corpus, but will be enough to get you started. If you are working towards a technology startup, outsource your product development. This way, you can work out a payment schedule that is spread over the product development lifecycle and will help you to get started right away with little investment.
Startup Contests: there are many startup contests these days where the top ideas win money to fund their ventures. A lot of these contests are also run by business incubators and angel funds. The startup contests are highly competitive and you typically make a pitch to a set of judges (mostly investors) so make sure you make a fantastic pitch presentation about your product and how is it intended to change lives (lots of resources on how you can make pitch presentations on the Internet). If you can exhibit this clearly, you’ve got a potential winner.
Friends and Family: dig out your friends and family members who would believe in your idea enough to put money on it. Get them involved in your idea and take them through the business plan, even if it is a rough sketch. Chances are, friends and family will be more patient and forgiving than angel funds or investors. Raise money through a number of people and offer them a small percentage of stake in your startup or offer them something that they can get their money’s worth when you successfully launch your product.
Crowd funding: it is the collective effort of individuals who network and pool their resources, usually via the Internet, to support efforts initiated by other people or organizations. Traditionally, crowd funding has been used to raise money for disaster relief efforts and now is widely used to raise money for startups. Crowd funding has increasingly becoming popular with the likes of Kickstarter, RocketHub, Indiegogo launching their platforms on the Internet that bring together startups and individuals who are interested in contributing towards an idea or a product. There are some general-purpose crowd funding sites such as the ones mentioned above and then there are industry-specific crowd funding sites that you can look up for your product.
Banks: banks provide small business loans to entrepreneurs who can prove their idea can bring about a positive change to the lives of the people. Of course, you need to present to them a solid business plan with market research, revenue projections, etc. The due diligence that is done by banks will be far more than what friends and family or crowdfunding would do so be prepared for all sorts of queries about your business, product and its market.
Angel Fund or Seed Fund: Angel investors are individuals who invest in companies that have a concept or an idea which is on paper and not yet materialized by means of physical product. If they believe in your idea, they will fund you. However, this would work best if you can take more than a paper, but a prototype of your product to show. This would serve as a proof that you are serious about your product enough to put something at stake, even if it is up to the stage of creating the prototype. Angel investing is an extremely high risk form of funding the typically such investors will put their bet on startups that could give them a return of at least 10 times their original investment within 3-5 years. Angel funding typically fills the gap between funding through friends and family and venture capitalists.
Credit Cards: lastly, but not the least, if you really must startup while you are evaluating other options, credit cards can get you that initial push. Using a credit card can be an expensive way to fund your business, but on the plus side, it can help you get started quickly. In fact, if you can get your venture off the ground through this means, you can then go back to other sources to show a proof of your pudding and gain more confidence in getting the second and bigger round of funding.
Raising funds for your startup is dependent on only one person, that is YOU. Only you can invent the future you want. So, brush up your networking skills and get out there and meet as many people as you can. Prepare a fantastic pitch presentation and a solid business plan. Find out about other entrepreneurs who have raised funds in their startup phase and speak to them about their experience.
And if you did raise funds for your venture, do share your experience.