How to Raise Funds
We have had numerous discussions and arguments on this, but to me, better sense eventually seemed to have prevailed over my friend. An avid book reader, my friend had finally decided to open his own ‘book cafe cum library’. I could see the spark in his eyes and the new found zeal to start out on an unknown journey. The plan was all-ready and he felt he had just discovered the right location for his first book cafe. Then came the all-important question ‘how do I get the money to start my business?’
As a first-time entrepreneur or even for a seasoned entrepreneur, raising funds for a start-up has always been one of the most challenging tasks. As we bury our heads over possible funding sources, it suddenly seemed that the task might not actually be that daunting. A conducive external environment and a change in perception towards start-up ventures have actually cut out the task for an entrepreneur, when it comes to raising money for the business. Each source has its own pros and cons, and it is important to figure out the right source of funding for your venture.
Some possible sources of raising money for business are:
- 1. Family and Friends
They might be the easiest investor to convince when it comes to borrowing from family and friends, but any financial relationship can put personal equations under strain. Business deals need to be kept separate from personal relations, and it is always advisable to put all lending terms on paper.
- 2. Bank Loan
This is probably the most common way of raising money for a small business. Banks usually require a guarantor or some other form of security to approve the loan.
- 3. Home Equity Loan
If you own a property, you can borrow money by mortgaging it with a bank or a non-banking finance company, which provides a home mortgage loan. Loans are generally provided up to 70%-80% of the market value of the property.
- 4. Co-founder
Getting a co-founder can also be a good idea, if there is someone who is willing to put in the money and also wants to be a part of the business. A compatible working relationship and mutual goal alignment are key deciding factors when scouting for a business partner.
- 5. Angel Investors
Lot of start-ups receive their initial seed funding from angel investors, who are on the look-out for promising start-ups and early-stage ventures. Angel investors are generally entrepreneurs themselves and can provide valuable business advice and connections, besides risking their money in a new start-up.
- 6. Venture Capital
When the fund requirement is large and the business has high growth potential, venture capitalists might provide the funding solution. However, most venture capitalists demand an equity stake in the business in return for funding it. So, if one does wish to part-with control, this might not be the ideal platform to raise funds.
- 7. Crowd-Funding
This mode of funding is gradually picking up steam. The project or venture idea is ideally proposed on a crowd funding website and general public are invited to fund it, if the cause meets their interests. People crowd-funding a venture are generally compensated with the product or service offering of the proposed venture.
With the number of funding options available, raising money for a start-up business might actually be much easier than what most people think it to be.