Most ideas do not reach the level of start-ups. Most start-ups do not become the full-fledged enterprises they want to be.
The reason is lack of funding.
This blog outlines 5 different sources of funding that you need to explore before you get deeper into your enterprise or give it up altogether.
5 Fundraising Sources:
Banks have the conventional go-to resource for companies ever since they came into being.
In order to be funded by a bank, you need to apply for a business loan. The banks will examine your idea, your model of revenue generation, and your personal credit score, among other things.
The advantage is that banks are very reliable and very systematic in their approach while evaluating your application. The interest rates also tend to be substantially lower than that on other kinds of loans. But the disadvantage is that they may take up a lot of your time because of all the bureaucracy.
You’ll need to ensure that your documentation is sound in order to approach the banks.
Family is another source of funds. Immediate or extended family members extend their support by investing in the business or providing a loan.
Parents tend to have some amount in their savings for their children’s future. The advantage is that they can be easier to approach. You’ll not necessarily be going through formal procedure.
The disadvantage is that the transaction is very high on emotional risk because it can affect the trust and respect among family members.
3. Private Equity, Venture Capital, and Angel Investors
These organisations and individuals, like banks, look at your revenue model and most importantly, your potential for growth.
The advantage is that they are a lot easier to approach than banks. They process proposals and expressions of interest faster than the banks because they don’t have to follow any strict paperwork while processing a proposal.
These three sources also provide you the best guidance for your business because the experts involved are familiar with the fundamentals of most industries.
If you are thinking big, these are the ideal to approach because they invest in huge numbers.
The disadvantage is that you’ll be ceding a lot of your own equity/ownership to them. You’ll not have complete control over the business and its management in exchange for the funding you receive from them.
4. Private lending
Private players like money lenders are approached for loans by small businesses, especially in smaller cities and towns.
The advantage is that it’s a faster process because it’s very personal. Because the money lenders work on the basis of trust and informal background checks, they are must faster to get response from.
The disadvantage is that the lenders charge a phenomenally high rate of interest.
Crowdfunding has emerged as an attractive source of funding because of the digital media. Start-ups appeal to people on specific platforms or websites and on the social media.
The advantage is that your financial risks will be much lower. Moreover, there are not always any strings attached like surrendering equity to VCs, etc. You’ll also be able to get your idea tested or validated by people at large.
The disadvantage is that your idea can be very easily duplicated or copied because you are discussing it on a public domain and making it available to everyone. Further, your business might be so technical or niche that people as a whole might not be able to understand it. You might not get any encouraging response from the website.
The online platforms themselves charge you a fee for using their websites in order to raise funds.
So, these were some of the sources of fundraising with their advantages and disadvantages. Talk to more people before you decide to explore one of them. Let us know about your own funding related experiences and challenges that you’d like us to address in future blogs.