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Funding The Start-Ups — Options And Challenges

INTRODUCTION

A start-up company is basically a young and a newly emerged business venture which is usually small and gradually enlarges itself as it starts getting recognized as a business entity by the public at large. At an initial stage generally, it is operated by an individual or by a handful of founders.

The concept of a start-up company is fresh and deals majorly with the matters not undertaken earlier elsewhere in the market. Now-a-days majority of the crowd follow their dreams and passion and give priority to it over money. People are in search of some good startup ideas which are new, innovative, has the capacity to contribute and the ones which can feed their passion. A best startup business idea is a must and it means a lot while establishing the business and for the future of the business. The founders of a start-up design their business plan as to be effective business plan that has the potential to become renowned and influential. Their aim is to qualify and prove themselves as any other company which is successfully running in the marketplace and also to meet and fulfil the needs and desires of the consumers.

Also, there is a huge amount of risk attached to the start-ups if they fail to achieve success in their business. Firstly, to determine what to sell where arises product related risks. Then if the product fails to attract the buyers or due to lack of proper advertisement it will lead to market related risks. Therefore a proper calculation and research must be done before launching your product in the market. Then comes the financial risks. Risks related to funds and arrangements of funds and investments.  There are many ways by which the risk factors can be eliminated:

By doing proper market analysis and research, by hiring good staffs, by doing a regular quality check, by working as per the needs and requirements of the customers, by understanding the customers. If you can execute your business plan, achieve success and reach each milestone successfully then the confidence of the potential investors will also rise.  

Being a businessman is not an easy task. He must not only know how to embrace failures but also how to walkthrough them and manage them.

ARRANGEMENTS OF FUNDS FOR THE START-UP COMPANIES

Financing a start-up — In the initial stages startup companies expenses may have a tendency to surpass their income as they work upon creating and developing, testing and promoting, advertising and marketing their ideas. For these purposes they frequently require financing. There are various ways by which financing and funding for a start-up may be done. Some are enumerated below—

• Bootstrapping – Which is also referred to as self-funding is one of the effective ways to raise funds without any external help or aid. Boot-strappers rely upon their savings and personal income and finances or can either ask their friends or families to contribute. This is easy with less formalities.
• Bank loans or loans from NBFC’s – One of the most common option which majority of the people will go for is by taking business loans. Before the approval of the loan, as per the requirements of the regulations it has to be guaranteed by a collateral security. These institutions grants loan and qualify themselves to become business leaders and not owners. The loan procured can be used in the business for different purposes like for purchasing inventory, for further funds expansion or as working capital.
• Crowdfunding – It is a platform for raising funds for a new business venture from a large no. of people via internet and social media. Crowdfunding websites makes it easy for the entrepreneurs to approach large no. of people for funds for setting up their new business. It is one of the newer ways of financing startups which has gained much popularity. So if an individual or a company wants to raise funds via crowdfunding he/she will have to give a detailed description about their start-up business, what the business is all about, what are the goods and products they’ll be dealing with, what are the goals, scope, etc., why people should invest in his business, what will be the turnover of the business, how much money is required to be raised as funds for the business. If they like the idea and sense some potential, they’ll invest.

The pros for opting for crowdfunding is that the public is aware of the products being launched in the market. Financing and advertising both the requirements are met.

• Angel Investments – People who have surplus amount of money and they are willing to invest in your start-up venture in return for ownership equity or convertible debt.
• Venture Capitalists – Venture Capitals are professionally managed funds who invests in start-ups having potential and long term growth. They invest large amount of funds as compared to angel investments.
• Products Pre-sale – Selling off the product before it is even launched in the market. For e.g. Apple started pre-orders and bookings of their Iphones even before its official launch in the marketplace. Indeed considered to be a great way to be well prepared for the consumers demand.

CHALLENGES THAT ARE OFTEN FACED BY START-UP COMPANIES

Starting a new business altogether with a new and an innovative concept in mind might sound exciting and thrilling but certain amount of risks are attached to it…as to what if the goals aren’t achieved? As start-ups struggle for a lot many reasons to sustain in the market. Some even die and only some lead their way to becoming successful. Risks, ups and downs and obstacles are a part of business.

• Funds – When, unable to procure the required amounts of finances, which ultimately leads to the death of the company.
• Lack of planning, analysis and research. The bases and the basics must be kept clear. No scope for ambiguity must be there.
• Hiring the right people who are skilled and have the capability to deal and survive in the toughest situations.
• Unwillingness to push yourself beyond the comfort zone – The basic idea behind a start-up is to come up with something unusual that nobody ever thought of before. So one should keep experimenting and must come up with new and creative ideas that are beneficial to the public at large.

Author: Neeraj Dubey and Associate Shristi Keshari