Sources of Raising Investment Funds for an Entrepreneur
Raising investment funds can offer a significant jumpstart to one’s business and increase the likelihood of success. Depending on the type of business and its domain, an enterprise would like to raise capital for business, to either start its operations or grow it at a faster pace. Fortunately, there are various new entrepreneurial funding sources.
However, it is also important to select from the best source based on the entrepreneur’s requirements and their financial standing. Partnering with a right investor can help a business soar to higher levels and sustainably achieve success.
As per a recent survey, in 2016, a total of $4 billion investment funds were deployed in Indian start-ups. The volume increased by 3% from 2015.
On the other hand, many entrepreneurs shut their shops due to lack of funding. Money is the bloodline for any business, and it needs the fuel called capital to survive the painstaking journey from ideation to growth. And that is a common reason, why most of the entrepreneurs at almost every stage are seeking outside investments.
Following is the list of comprehensive sources for entrepreneurs to raise capital for their business.
1. Seed Investment Funds
Seed investment is one of the newer forms of raising capital for business. Many successful business honchos based out of the entrepreneur’s locations are extending small capital of up to Rs. 25 Lakhs as seed investments for start-ups. Usually, this funding is issued at the ideation stage to build the minimum viable product and validate the business idea with real paying customers.
Such start-up funding also allows large investors to gauge the potential of the entrepreneur and the business idea. One can access this source by parting away with a small minor stake in the company with the investor.
2. Angel Investment Funds
Angels are individuals who invest a large sum of amount as compared to seed investors and usually support proven business models which have validated the idea and expect faster growth. Along with start-up funding, these investors also get on board mentoring and advice to grow more quickly and attract the next round of investment.
One of the drawbacks of angel investment is the limitations of funds unlike venture capital and may not be able to support if the start-up is growing incredibly fast.
3. Venture Capital
These are the set of investors who place big bets. Venture capital is a professionally managed fund and deployed in hyper-growing companies with enormous potential. A venture capitalist invests in equity and looks for harvesting within 3-5 years’ time frame. Such investors bring much more on the table that funds which include corporate governance, PR, network and senior leadership to the company.
Businesses that do not have a hyper-growth do not usually excite these set of investors, and they choose to invest in companies with proven business models only. Venture capital is also the riskiest money, and thus the investors like to take a significant share of the pie in the business against their investments.
4. Loans from NBFC’s or Banks
Loans are one of the most conventional sources of capital for business. NBFC’s or banks do not prefer to take risks like a venture capitalist and choose to invest only in proven business models with a large successful background. Banks charge the entrepreneurs with usury in the form of interest for raising capital for business, and the company is expected to return the money in the mid or long term.
These investment funds are usually not accessible to new entrepreneurs unless they are backed by collaterals, bank guarantees or hypothecation of stock. Though, the new banks nowadays are aggressive in extending more investments to entrepreneurs and have launched various plans and schemes exclusively for the new entrepreneurs.
5. Crowd-funding Websites
It is one of the newest ways of raising investment funds and has been gaining quick popularity. Crowd-funding for start-ups is an investment made by individuals who are excited about the business idea and want it to see the light of the day.
This investment is usually issued in the form of gift or against receiving some exclusive benefits like access to the product before the rest of the world. Crowd-funding investment is an exciting way of raising capital for business since it also works as a pre-marketing for the company and validates the idea at an early stage. Usually one will find various artists, students or entrepreneurs at early stage accessing this source of investment.
6. Business Grants from Incubators
Grants are a growing method of raising investment in India. Various private and public incubators have launched programs for entrepreneurs to raise investment fund in the form of subsidies. These are mainly issued by private entities, foundations or government schemes to promote entrepreneurship in focused business domains.
The drawback of this arrangement is that it can take a longer duration to access these investment funds and the process at times may be time-consuming. An entrepreneur must pass through certain eligibility criteria to obtain this form of investment, and the best part is that they don’t have to part away with any share in their business.
7. Government Schemes and Subsidies
Across the globe, governments are supporting entrepreneurs by providing them access to various schemes and subsidies. It is helping to boost innovation locally within the economy and support domains which have been ignored by another category of investors. An entrepreneur must meet pre-defined criteria and be eligible to access these schemes.
Some of the drawbacks of obtaining this form of funding are the time consumption in raising capital for business, bureaucratic process of disbursement and necessary paper-word that an entrepreneur must possess. However, the government is also relaxing certain norms and through private partnerships is disbursing these investment funds faster.
Conclusion
As per Nucleus42 report, India is rated 3.43 on financial opportunities as compared to 3.22 score for USA. To scale their business faster, an entrepreneur needs to raise external investments. Depending on the business priorities, one should start looking at raising investments from some of the above forms at the right time.
Since few of these options are time-consuming, it is advisable to start early. Entrepreneurs must review their financial needs, qualifications, and urgency of raising investment funds. It is important to be aware of all the sources and their pros and cons before approaching any investor.
Usually, taking support from a start-up funding service will help to achieve the process faster and access their networks. Various funds are actively looking at deploying investment in Indian start-ups and are actively looking out for fundable business ideas.
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