A large number of businesses fail during the first year of operation due to lack of funding. Money is considered to be the bloodline of any business, no matter its size or type. The exciting yet painstakingly long journey followed by businesses to turn an idea into a revenue-generating venture involves raising capital. Hence, Kavan Choksi points out that entrepreneurs have to put in proactive efforts to raise startup capital.
Kavan Choksi talks about funding solutions that can help in raising startup capital
How and when a company tries to acquire funding would largely rely on the nature and type of the business. Once a business owner realizes the need for fundraising, they must explore options for short-term loans, capital loans, and more. Here are some of the most prominent ways startups can raise capital:
- Bootstrapping the startup business: Self funding, also known as bootstrapping, is a pretty effective way of financing, especially when a person is simply starting out their venture. First-time entrepreneurs commonly experience trouble in getting funds without first showing some traction and a plan for potential success. Business owners can invest from their savings, or even ask their family and friends to contribute. Due to fewer formalities/compliances involved, funds would be easy to raise through this method. Bootstrapping can be a good funding option for people who do not have robust current assets that can be leveraged to get loans from established financial institutions.
- Crowd-funding: In recent years, crowd-funding has become a popular means to fund a startup. This system involves taking a loan, pre-order, contribution, or investment from more than one person at the same time. Just about anyone can contribute money toward helping a business that they believe in, under this approach.
- Angel investment: Angel investors imply to individuals who have surplus cash along with a high interest in investing in upcoming startups by providing capital loans. These investors typically work in groups or networks to collectively screen the proposals prior to making an investment. They may also offer mentoring or advice alongside capital finance. Many globally prominent businesses have been helped by angel investors. This alternative form of investing typically is needed in a company’s early stages of growth, with investors expecting up to 30% equity or so. They tend to take more risks in investment for higher returns.
- Venture capital: Venture capital basically is professionally managed funds that are invested in companies with impressive potential. Venture capitalists typically invest in a business against equity and opt to exit when there is an IPO or an acquisition. They can even offer expertise and mentorship to startups, and act as a litmus test of where the organization is going. They evaluate startups from the sustainability and scalability point of view before making an investment. A venture capital investment is usually well suited for small businesses that are beyond the startup phase and are starting to generate revenues.
As per Kavan Choksi, any startup founder wanting their venture to grow fast would need outside sources of capital. In case they bootstrap and remain without external funding for too long, they might not be able to take advantage of market opportunities. Hence, it is prudent to carefully research and select the appropriate financing option.
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