Sources of funding to start your business

Raising funds is one of the most daunting tasks for an entrepreneur. At times not being able to raise funds in a timely manner can endanger the very existence of business. While equity investment from Seed / Angel / VC is most popular and sought after, there are other options as well.

  1. Bootstrapping – Self-funding from your savings (if you have it) is the best option if you can do it. There are many examples of companies that were bootstrapped and are successful today.
  2. Friends and family – A friend (and family) in need is a friend indeed. The advantage of raising money from friends and family is that they’re easy to find. There are three main disadvantages: you mix together your business and personal life; they will probably not be as well connected as angels or venture firms; and they may not be accredited investors, which could complicate your life later. It also augurs well if you go to a professional investor later.
  3. Small business grants – This is not readily available, but if one gets, is the best option to start or quickly scale up. In India, states promoting entrepreneurship at times give out grants and subsidized services.
  4. Bank Loans – Commercial banks are often dismissive of start-ups unless you have personal collateral at risk–say, your house.
  5. Accelerators or Incubators – have launched success stories like Dropbox and Airbnb, whose founders received a small amount of funding and valuable mentorship from experienced entrepreneurs in exchange for somewhere between a 7% and 10% stake in their companies.
  6. Institutional Investors – Angel Network / Seed Funds / VCs – This is the best option as you do not need to give any collateral or pay back interest and principal. Online downside is you lose ownership and control of your business.
  7. Bartering – Exchanging goods or services as a substitute for cash can be a great way to run on a little wallet. Example: trading free office space by agreeing to be the property manager for the owner. This technique can also work with legal, accounting and engineering services.
  8. Partnership with vendor – You want to develop a software platform, you can partner with a Software development company. Let them develop and maintain the software for you for an equity stake in your business.
  9. Crowdfunding – Crowdfunding platforms like Kickstarter and Indiegogo, allow members of the public to give cash donations in exchange for no benefits or some benefits like early access to a company’s product or other perks
  10. Start by Consulting (Service) then Productise – Another way to fund a start-up is to get a job. The best sort of job is to do a consulting project or become a service provider. This is a good plan for someone with kids, because it takes most of the risk out of starting a start-up. There never has to be a time when you have no revenues.
  11. Negotiate an advance from a strategic partner or customer – Find a major customer, or a complimentary business, who sees such value in your idea that they are willing to give you an advance to complete your development.

References:

  1. http://www.forbes.com/2010/02/12/funding-for-startups-entrepreneurs-finance-zwilling.html
  2. http://paulgraham.com/startupfunding.html
  3. http://www.entrepreneur.com/article/237926

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