Today’s generation is felicitated for its ambitious, go-getter attitude and its courage at not letting financial constraints stand in the way of career goals.
Today’s generation is felicitated for its ambitious, go-getter attitude and its courage at not letting financial constraints stand in the way of career goals. No longer is seeking funds for a smart business idea a preserve of the well-connected or the well-heeled. One of the most respectable and obvious methods to start a new business is by paying out of your own pocket, otherwise called bootstrapping. In case your start-up needs large sums of capital, associating with a partner who has deep pockets is a safer alternative. By one estimate, 28% of all globally renowned business entities had co-founders precisely for this reason. However, you must ensure that your partner’s commercial goals are the same as yours. If you have friends or family that have the means to collectively fund your enterprise, go for it. Because your relatives and friends demand less formalities and compliance including rates of interest, this is a smoother option.
Informal funding sources
The most democratic method to raise money is crowdfunding. As an entrepreneur, you can propose, pitch, and put up detailed business plans, etc., on a crowdfunding platform. Users of the platform can read this information and if it strikes a chord with them, pledge money or pay any amount as a donation.
Venture capitalists (VC) are organisations that have corpuses of pooled funds from a number of members or the public. They scout for promising start-ups with high growth potential and buy equity in your firm in exchange for funds. VCs also provide mentorship and expertise while periodically evaluating the business for sustainability and scalability.
Another variety of financers are angel investors, who may be individuals or groups with surplus cash. Business advice, tutoring and access to social networks are some of the benefits that an angel investor will offer entrepreneurs.
If you operate in a major city, your search for funding is likely to lead you to platforms called incubators and/or accelerators. The sole purpose for their existence is to guide businesses in the very early stages. Incubators allow start-ups access to space, training and value-chain networking in a bid to help them develop. Accelerators simply do the same thing on a larger scale and often help existing businesses reach maturity faster. These platforms, however, offer short-term assistance but give you the opportunity to connect and relate with your peers, investors and mentors.
Funding in the formal sector
Banks and micro finance institutions have traditionally been there to help with either working capital or initial funding. While the former lets you complete one revenue-generating cycle without any hitches, the latter requires assessing your business plans, assets and competencies quantitatively before a loan is sanctioned. Micro finance caters to that audience which either do not have access to the conventional banking system or those whose funding needs are partial and credit score not up to standard.
Another option is the Pradhan Mantri Micro Unit Development and Refinancing Agency Ltd (Mudra). This public fund is disbursed to entities in the micro enterprise sector. You must submit your detailed business plan and if that gets approval, you will be sanctioned a loan. You will obtain a Mudra card, which functions like a credit card with which you can purchase raw materials and meet other operating expenses. This grant is, perhaps, the best option if you qualify for it.
By Narendra Shyamsukha
The writer is founder chairman of ICA Edu Skills, a leading skill development and education company.