A startup is referred to a company that is in its first stage of operation. Startups are founded by people who invest in a particular product or service and develop it. The demand for this product or service either exists before or is created. Funding a startup refers to the money required to start or run a business. A fund is a financial investment in a company for developing, manufacturing, sales and marketing, etc. For a startup to grow successfully, investors and venture capitalists must fund the business to scale it and to make it profitable. One should explore different perspectives on how to get funding for the startup.
Methods to Fund a Startup
The first step towards funding a startup is by ensuring the investors validate the idea or plan of the startup. Investors have to like the idea and be willing to invest in a project that has a demand or a great future in the market. The investors are obligated to analyse the startup idea’s economic, sociological, environmental, and other aspects. After this stage, the funding begins. There are a lot of ways to fund a startup, and the process of how to get the financing of a startup is as follows:
Bootstrapping
This is how the entrepreneur funds his capital, and this amount is limited. Bootstrapping does not involve outside funds into the business. While starting the company, the entrepreneur uses their minimal available funds. Generally, the funds invested by the entrepreneur are personal funds or funds borrowed from friends and family or the initial revenue of the business. Even today, many entrepreneurs are not sure how to get funding for their startups.
Crowdfunding
This is a process by which funds are raised at minimal amounts from many people to invest in a startup. These days, crowdfunding is done through the internet, or social media is put to its best use.
Incubator
This program is a collaboration designed to help in the success of a startup. These incubators are generally non-profit organisations handled by both public and private companies. They also help enrich and channel the business ideas and help build the company from scratch.
Small Business Loans
One can avail of business loans from banks for the funding of a startup. It is difficult to obtain loans for a startup in the initial stages as it is just an idea, and nobody would like to take a risk by lending money. After the SIDBI (Small Industries Development Bank of India) began funding startups and MSMEs (Micro, Small and Medium Enterprises), loans were offered at lower prices because of the size of the business and its nature. Many schemes were introduced in India solely to encourage small businesses and startups. Some of the projects are as follows: Pradhan Mantri Mudra Yojana (PMMY), Credit Guarantee Scheme (CGS), Startup India, and other sustainable finance schemes.
Borrowing from friends and family
When the entrepreneur is uncertain of getting funding for a startup, friends and family come to the rescue. When outsiders can’t believe in a startup idea, it is easy to convince family and friends to believe in the concept. When these people lend money, either as a loan or an investment for a startup, it is essential to make a legal contract to act as per the terms and conditions specified in the contract.
How does funding work?
It is pretty difficult to determine how to find investors for startups in the initial stage of developing the plan or idea. The first click happens when an investor understands how to fund a startup based on the idea as a sole source of trust. Once the idea stage is sorted, then comes the co-founder stage. An entrepreneur picks up a suitable business partner who has the necessary skills and is ready to work smartly and enthusiastically. Then the company should be registered, and the angel investors or venture capitalists step in to fund the project. The investors perform various analyses before investing in the business. They also look forward to learning how to fund a startup before investing in it.
Conclusion
For a business to initially thrive, it must get funding to get through the processes without many hurdles. Financing can prove to be difficult for a company to procure at all stages. Being the foremost thing, businesses must be economical and budgetary when spending. Businesses cannot afford to lose out on excess expenses that they could have spent on something productive. Determining how to get funding for a startup can be an arduous task, but nothing can be achieved without leaping. Thus, it is of utmost importance that a business chart out its financial needs at the earliest and plan accordingly.
