Making Entrepreneurship Your Destined Vocation

You would still have to convince potential investors of the viability of your plans, especially, if you have no prior business experience but it pays to explore all the options for sourcing of funds you can tap.

Today’s generation is being universally felicitated for its ambitious, go-getter attitude and its courage at not letting financial constraints stand in the way of career goals. New enterprises and entrepreneurs are a vital sign of an economy’s health. No longer is seeking funds for a smart business idea whose time has arrived, a preserve of the well connected or well placed. There are many ways to get your plans across to a huge audience of investors. You would still have to convince potential investors of the viability of your plans, especially, if you have no prior business experience but it pays to explore all the options for sourcing of funds you can tap.

One of the most respectable and obvious methods to start a new business is by paying out of your own pocket, otherwise called Bootstrapping. This is clearly not a simple task because it may require you to save over time or use funds earmarked for a contingency. It also requires consistent diligence in not missing growth targets. You may also need some good fortune at times. However, if done right, rapid success is a natural consequence and you will find plenty of investors in no time. There are some ventures that require considerable initial capital. Bootstrapping may not be a viable option in such a case.

In case your startup needs large capital funding, 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. Many successful businesses begin with loans or advances from a known patron. Because your relatives and friends demand lesser formalities and compliances including rates of interest, this is a smoother option. Nevertheless, there are many relationship minefields to navigate through, which if handled without dexterity, will result in tensions and relationships turned sour. If its relatives that you’re borrowing from ensuring that those funds are disposable. Further, it helps immensely if lending agreements are unambiguously enunciated regardless of whether you are being charged commission or interest or not.

Informal Funding Sources

The most democratic method to raise money is a way called Crowdfunding. As an entrepreneur, you can propose, pitch, and put up detailed business plans etc. on the crowdfunding platform. You can lay out business goals, plans for obtaining revenue, marketing strategies, your competencies and the number of funds you need. Users of the platform can read this information and it strikes a chord with them, pledge money or pay any amount as a donation. Because millions of people access the site daily and across geographies, you are more likely to find supporters if your cause is well presented. Another positive externality derived is that public interest is created and this may, cumulatively, over time, spur demand for your product. Note that because crowdfunding is a highly competitive arena, you are unlikely to garner finances if somebody else has a better idea.

Venture capitalists are organizations that have corpora of pooled funds from a number of members or the public. They typically scout for promising startups with high growth potential. They buy equity in your firm in exchange for funds. It may so happen that the market for your product is not as remunerative as required by VCs. In such a case, there are other sources of funding more appropriate, such as crowdfunding discussed above. The advantage of a VC is that they also provide mentorship and expertise while periodically evaluating the business for sustainability and scalability. VCs are also very demanding when it comes to recovering their funds in a time-bound manner. They are unable to afford flexibility in keeping their funds parked for longer than they have promised their corpus of investors.

Another variety of financers are Angel Investors, who may be individuals or groups with surplus cash. They may be successful businessmen with an interest in supporting upcoming start-ups. You would still need to create convincing pitches and presentations. As with VCs, the advantages of Angel Investing exceed mere funding formalities. Business advice, tutoring, and access to social networks are just some of the benefits that a good Angel Investor will spare.

If you live and operate in a major city in India, 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.

A Case Study:

The Jain International Trade Organization (JITO) is a body of successful Jain businessmen, knowledge workers, and professionals covering various fields across the globe. It organizes a program called ‘Investor Pitch Day’ in various metropolises in India, where JITO’s Angel Network hears pitches and presentations from high potential candidates while others participate simply to learn from the experience. The ventures that attempted to seek funds included Clinivantage, a healthcare initiative that partners major hospitals and laboratories along with the Government to enable last mile access to remote and impoverished communities, Stylebook, which makes and delivers clothing articles as designed by end consumers and Satva Ras, which manufactures and markets completely natural, fresh cold-pressed juice.

Altogether, JITO has received $3 million worth of proposals of which $1 million have so far been executed.

Funding for Start-ups in the Formal Sector

The options discussed above are relatively new age and easier to access. However, banks and microfinance 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 them to assess your business plans, assets and competencies quantitatively before a loan is sanctioned. There is still room for qualitative evaluation and the process may not be altogether objective. Virtually, every bank in India provides financial assistance to new enterprises in one form or another. But if your profile fails to qualify for such an advance, microfinance is another alternative to explore. This model caters to that audience who either do not have access to the conventional banking system or those whose funding needs are partial and credit score not up to standard.

Apart from banks, the other authoritative option to meet funding requirements is the Pradhan Mantri Micro Unit Development and Refinancing Agency Limited (MUDRA). This public fund is disbursed to entities in the microenterprise sector. Like with other sources of finance, 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.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house

Tags assigned to this article:
start up

Around The World

Our Publications