Alternative Ways to Raise Fund

February 2, 2017by Deep1
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Many entrepreneurs have creative and innovative business idea but they don’t have sufficient amount of capital. Due to capital inadequacy, many startups does not survive or not able to
start their business. How can they get fund? What are the sources of getting the fund to start your business? Who will provide fund? There are multiple sources which can assist you
financially.

Angel Investors:

Angel Investors are affluent individuals (Retired entrepreneur or executive or small group) who provide capital for startups. However, they are also known for investing in companies that are
struggling financially and need capital for survival and/or revival. Angel investors primarily look for 6 important components when agreeing on an investment:

  • The promise of a large ROI.
  • The rationale behind every investment.
  • A promising pitch and convincing business proposal.
  • A solid management team.
  • Proper business structure and organization.
  • A well-defined exit strategy.

The internal rate of returns for a successful portfolio for angel investors ranges from 20 to 30% over a period of time. Angel investors typically use their own money for investment, unlike
venture capitalists who manage the pooled money of others in a professionally managed fund.

Venture Capital:

Venture Capital is funding that an investor provides to small or startup businesses that are having potential growth in long run. The people who invest this money are called venture
capitalist. Capital is invested in exchange for an equity stake in the business rather than given as a loan. Venture capital has following characteristics:

  • High Risk.
  • Lack of liquidity.
  • Long term prospect.
  • Venture capital investments are made in the innovative project.
  • Provider of venture capital fund participates in the management of the company.
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Crowdfunding:

Crowdfunding is a solicitation of the fund from multiple investors for the specific project, business venture or social cause. It is a system where funds are raised through mediums like
internet-mediated, mail-order subscriptions, benefit events etc.

The advantage of Crowdfunding is that it can generate interest and hence helps in marketing the product alongside financing. It is instead of asking a few people for a large sum of money it
asks a large number of people each for the small sum of money to finance your big dream. These funding can be used for various purposes like charitable to educational project to personal ventures or creative ones.

There are different types of Crowdfunding:

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SEBI has made guidelines for Crowdfunding aimed at improving access to funds for Startups and SMEs.
Which are as under:

  • Only accredited investors may invest.
  • QIB to hold at least 5% of issued securities.
  • Retail investor contributes minimum amount Rs.20000 and Maximum Rs.60,000.
  • A maximum number of retail investors are 200.
  • Only startup less than 2 years old eligible to participate.
  • Need to disclose anticipated business plan, usage of funds, audited financial statements, management details etc.

Bootstrapping

Bootstrapping is a self-funding and easy way of startup financing when you are starting a new business. You can get fund from your savings, friends, and relatives. This will be easy to raise
fund due to fewer formalities/compliances as well as less cost of fund.

Bootstrapping is first funding option because of its advantages. This option is possible only if the initial requirement is small.

Micro finance provider or NBFC

Micro finance is the type of banking services which is provided to unemployed or low-income individuals, or groups otherwise have no access to financial services. Microfinancing provides
options to customers with limited resources to promote participation in activities or to support small business. In Microfinance lender must charge interest on loans, and they make specific
repayment plan with payment due at regular interval.

NBFC is a company registered within the meaning of companies Act, 2013 of India, and doing the business of loans and advances, acquisition of shares, stock, bonds, hire purchase, insurance business or chit business. The working and operations of NBFCs are regulated by Reserve Bank of India. NBFC provides the loan at higher interest rate compare to banks to startup or business who need funds. NBFCs bear the higher risk. There are different types of NBFC which are as under:

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NBFCs generally provide funding into:

  • Construction equipment.
  • Commercial vehicle and cars.
  • Gold Loans.
  • Microfinance.
  • Loan against shares etc.

If you need fast funding then above all sources will help to get fund but the cost of the fund will be higher as compare to banks.


One comment

  • Hemang Ajmera

    February 8, 2017 at 12:09 pm

    Food for Thought..Really Helpful

    Reply

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