A start-up is a company that is in its initial stage of business. To bring the idea to life or to scale up, funding is required which is one of the significant challenges that the entrepreneurs face because it requires convincing others that the idea is a solid investment. According to an Inc.com article, “Only 4 out of 100 businesses survive past the 10-year mark.” So having adequate and timely start-up funding is all the way more essential for a growing start-up. Tapping a traditional source of finance for a start-up can be stressful if one does not have an established track record or does not have enough asset backing to loan the amount needed. The many funding sources for start-ups include family and friends, angel investors, venture capitalists, crowdfunding (Popular fundraising platforms for start-ups in India are Kickstarter, Wishberry, Ketto, among others.)
Let’s now discuss one by one the start-up funding challenges and how to address them efficiently.
- The Business Idea needs to be scalable.
One of the reasons why start-ups struggle to secure funding is that they cannot efficiently communicate the scalability plan of their business. Investors wants to see scalability i.e. making possible growth and increased revenue without significantly increasing costs. For this, a sound business model should be in place which supports the growth projected, try to outsource non-strategic aspects of your business to minimize expenses, focus on the core competencies, and seek continuous improvement.
- Ascertain the funding needs.
Determination of the amount of capital one needs to make the business idea a viable one in the long term is crucial. One must know how much money is needed. Most people would say one should raise as much money as possible. However, in many cases, more isn’t always better, it can lead to increased pressure to scale up the business quickly leading to deviation from the initial plan.
- Ascertain the right funding option.
Finding the right funding option is a common challenge that businesses face. To increase the chances of getting the funds, one needs to choose the most viable funding alternative. Sometimes, one may also need to use more than one option to fund the start-up. For instance, if a person is launching a start-up in an industry with high average investment capital, he can consider reaching out to angel investors or venture capitalists. Also, doing research and determining the type of VC or angel investor is crucial.
- Seeking help from Financial Experts.
Lack of knowledge of funding sources, inappropriate valuation, finding the right amount to be funded, the entrepreneurs may be experts and know their industry and domain but may lack knowledge that tackles the aforementioned issues raised. So considering consultancy from financial experts or a financial services company who can leverage their network and tie up with fundraising platforms in India and help the start-up raise the adequate amount from the right source or multiple sources as per the funding requirements.
- Leverage Personal and Professional connections, Build robust networks.
Many entrepreneurs try doing it all alone. To take the start-up to the next level all alone is extremely difficult and unadvisable. The personal and professional connections that one forge can be leveraged to boost the business exponentially. Forming relationships with other companies and business contacts is one of the most important aspects of growing the business. Being active on online communities like Reddit, Discordapp, Angel.co, Indie Hackers which have huge developer communities with connections to potential investors, and in-person networking are very important.
- Have an exit strategy.
Having an exit strategy can help provide more funding opportunities. Having clear goals set and an idea of where one wants to be in the future gives a clear picture to the potential investor. For this, a sound business plan which has a realistic financial forecast should be communicated to the investor. Forecasting the expected cost, the investment or loan will cover, and the returns it will generate in the future with a proper justification is crucial.
- Try tapping newer and simpler ways of funding like Crowd Funding.
Raising money through bank loans, venture capital, and angel investors involve complicated procedures. To avoid this crowdfunding is used by entrepreneurs. It refers to funding the start-up through public donations. If the business idea is innovative enough and has a unique selling value and proposition that people will truly care about, then crowdfunding just might work. To succeed, one must make the campaign visible, measurable, and understandable. The popular fundraising platforms for start-ups in India which facilitates crowdfunding are Kickstarter, Wishberry, Indiegogo, among others.
So to wrap it up, persuading investors into believing in the business idea and then proving the funding requirement can be a difficult task, but with making sure that the solution is scalable, robust network, right planning, required knowledge, sound business model, among others will help ensure that one is ready to grab the opportunity when it presents itself. The aforementioned tips will help overcome the common funding challenges and will lead the business towards long-term success in the respective niche.
– Ayush Saraf
Finance Team
AnBac Advisors