Alternative Ways To Finance Your Start-Up
Updated: Feb 25
For a start-up to truly be successful it needs the starting boost that finance provides. Financial capital is what helps a start-up grow to its full potential. There are many traditional sources of finance including bank loans and private equity that many entrepreneurs use to finance their start-ups. However, more and more entrepreneurs are looking to find alternative and innovative ways to secure funding for their start-ups. As a Small Business Start-up Advisor in Mumbai, I help start-ups acquire different kinds of funding. As such I know of a few alternative sources to finance your start-up.
The type of funding you get is also very dependent on the type of start-up. So here are some of the alternative ways that I think you can fund your start-up.
Venture capitalists invest in start-ups that they think have the potential to make it big in the industry. They provide their expert minds on the scalability and sustainability of the start-up. They evaluate the business in many ways to see how it can succeed. The way that venture capitalists work is that they will invest in a start-up against the equity and they exit when there is an acquisition or an IPO. Using venture capitalists for your emerging start-up is a good opportunity because they only invest in businesses they see true potential and scalability in.
This is one of the newer and more innovative ways to secure funding for your start-up. How this form of financing works is that you take your start-up idea directly to the masses. You provide a detailed write-up about your company and what it’s all about. If people like your idea, they can invest in it to help the company grow. The positive aspect of crowdfunding is that it doesn’t just help with the finance part but is also a good marketing tool to promote your product or service.
Business Incubators and Accelerators
Many early-stage start-ups acquire their funding from business incubators. These programs are known to assist thousands of start-ups yearly. Incubators help promote and advance the business by providing training, tools and other forms of help to the start-up. On the other hand, accelerators help nurture the business in the same way but also help the start-up take giant leaps and bounds the industry to create waves and garner profit. These incubator and accelerator programs normally take 9 months and require dedication on part of the employees as well as the business owner. Start-up advisors are keen for their clients to pursue this route because it helps increase the contacts and customer base of the start-up.
This form of financing occurs when the start-up borrows money from an investor group or an investor and a collective agreement is made between them. The agreement stipulates that the debt that the business owner is in will be converted to equity in the future. For this form of financing to work, the business owner must be comfortable with relinquishing some amount of control from the company. These investors are guaranteed some amount of returns in the year until the business can convert the debt into equity. What attracts start-ups to this form of financing is that it doesn’t place a strain on cash flow.
To Sum Up
Finding innovative ways to secure funding for a start-up is hard work and requires constant effort. However, it’s an imperative step in assuring the success of the company. Further for any newly formed start-up, the best way to decide if it requires an angel investor or additional start-up funding is by having a complete business plan. Your business plan should also include a One-Page Business Plan. I have developed a one-page business plan for all start-up founders and entrepreneurs. This business plan helps you ideate what you would like to achieve the following year as well as the activities you are willing to give up. It helps you to understand the shortcomings of the previous year as well.
About Devansh Lakhani
Director of Lakhani Financial Services, and a Chartered Accountant, he helps start-ups raise funds from his network of investors. He guides and advises start-ups to scale up by providing efficient sales, marketing, team building, and business management strategies. He has executed fundraising by block deals on the stock exchange and conducted IPOs and right issues on the SME platform to the tune of over Rs. 50 Crore. He is currently working with start-ups from various sectors to help them channelize their business models and investments.