Financing for start ups

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Have an idea which has potential to stack your pockets with millions and trillions??
Have an idea which can revolutionize the society??
Have an idea which can make many employed and get off their lazy sleep???
And, if you are worried about the meager funds you have or u want to raise the funds; then goes the article for you!!!!

Fundraising is not an easy task.It is a long way through to go.Funds is like the heart of a start-up without which going ahead is difficult.Many start-ups disappear into thin air as they are deficient of funds. So, beware and act smart while raising funds.

Funds for a start-up can be raised from two ways:

  • Equity Funding
  • Debit Funding

Equity Funding is the act of raising funds for the start-up activities by liquefying the ownership in the start-up. Liquidation has many advantages. It assists the business in many ways and helps your start-up grow immensely.

Debt Financing is the act of raising funds by borrowing from individuals, investors, vendors. They receive a promise that the principal and interest on the debt will be repaid.

The major difference is that people involved in equity funding need not be paid if the company is not making any money; but, the people in debt financing must be paid in a timely basis. So, it is also advisable to raise your funds through equity funding as there won’t be any timely commitments and you can concentrate on the other aspects of the start-up.

EQUITY FUNDING:

As I have told before, it is always advisable to rise funds though equity rather than debt funding. In equity funding, there are a numerous types and I would discuss the different types with respect to the age of the start-up.

In the Embryonic Stages:

It is not surprising that many start-ups don’t have any solid idea and they just start up as they want to have their own company. But, it is the first wrong step if you are moving in these lines. Initially have the skeleton of the start-up cooked out. It needs to cover the following points:

1.What are you going to do??

2.Who are the targeted crowd?

3.What is the size of the market?

4.How are going to generate money?

5.How many competitors are there?If any,how can you out-stand them?(Recommendable to project the statistics)

 

BRUNCH POINT:Start saving whatever funds you have from the point you have an idea of a start-up.Every penny is valuable.

 

When your start-up is just born:

A start-up will be born when a group of geeks try to implement a money-generating potential idea into practice.And, BEWARE!!!U need to work more than full-time…:D…A more tougher job!!

Initially,all the legal work,registrations need some amount of money which the group can settle among yourselves!!And, Infrastructure can be given room right in your room. The money starts flying once the work starts..Then,you would skip your plans in search of funds….the life of a start-up.U will start molding your start-up to be a presentable one in front of Angel Investors,Seed Angel Investors,Venture Capitalists(too much far from now!!)

I guess, Prevention is always better than Cure. So, start cutting you expenses and working over-time.The initial months of a start-up are the most important as you will make your mark in the first few days and first Impression is the best one!!(Matters in front of your dream girl’s Dad too ).Then, it will the turn of Big Daddy’s of funds to stand in front of you. If you work hard and cut your expenses you needn’t dance to the tunes to Angel Investors, V.C.’s etc.

The funds during your first days can be termed as Seed Funds.

1. Personal Funds:

Start saving money from the moment you want to become an entrepreneur.But,its never too late!!Start saving from today.The biggest advantage is that it is your money and you have the flexibility regarding these funds. You can invest them intelligently at any place without any NO!!!’s.Personal Funds also make you take the reins of company of your company when you have to take decisions, as no sooner your company will be having a board of directors.

BRUNCH POINT:Always keep salary of about 2-4 months in the bank and take it out as your earning for the coming months. This would motivate you psychologically to work more harder and deal your personal life with ease.

2. Friends and Family Fund’s:

You can approach your family and friends whether they want ti invest in your start-up.We needn’t take any rupee on a sympathy basis.Make it more formal by giving them shares in your company.
BRUNCH POINT: Liquidation is good. Don’t think about it negatively. It has its own unseen benefits and helps to increase your start-up immensely.

 

Once your start-up is good for outside investments:

Here comes the role of Angel Investors, Super Angels, Micro-Finance, Crowd Funding, Venture Capitalists.As there are too many of them I would discuss them highlighting the appropriate ones for different start-ups.Don’t get panicked if you have skipped your first step of investment and flew directly to this place. You can be a star now too!!You might be in the right place at right time.

1. Angel Investors:

Now that, you have successfully completed the initial stage in a brisk pace; its time throw a small party and do merry..And, now begins the more important phase which can make your start-up REAL BIG…..

Angel Investors are a group of individuals or an individual who have bundles and bundles of money and are eying huge returns on the investment they make in a start-up. They only invest money but do no provide any form, of entrepreneurial help generally. Sometimes all the individual angles form a group and pool up their funds and provide the funds to the start-ups so that they can diversify the risk accounted in the investment. Angel Investors generally invest $10,000 to $100,000 in a start-up often seeking convertible loans, preferred stocks or equity stake.

Generally Angel Investors are submitted a presentation generally through internet. If the start-up’s plan is appreciated by the investors they would be proceed further and have talks with the entrepreneurs regarding the investments. The angles can have a hard cash for stock or convertible loans or preferred stock. Angels doesn’t interfere in vesting.

Angel Investors prefer convertible loans rather than stock. Convertible loans can be converted into stock at the end of the process. It helps them to save themselves from getting trampled under the big foot of V.C’s whose investments are much more than Angels. When V.C.’s enter the picture the Angel’s shares will get diluted and so they prefer Convertible loans.

Coming to the stocks, they would prefer Preferred Stock rather than Ordinary Stock. Preferred shareholders are given more priority on earnings, assets on liquidation and have fixed deposit unlike ordinary shareholders. But, they don’t enjoy the voting power of ordinary shareholders.

Vesting powers are better to reside in the hands of founding members to protect one from the other. Angels don’t demand vesting power because of the small investment in a start-up unlike V.C.’s.

After you have some angels in your start-up,its time to rack your brains for the techie-stuff and expanse your start-up.You would have half-a-year time and see your start-up progress which would make your path to the V.C.’s a CAKE-WALK.

BRUNCH POINT:

  • Put your own skin in the game. It shows your dedication, seriousness and passion. Business people are attracted towards solid proofs.
  • Don’t project high valuation in front of Angels.
  • There are no bad ideas…only poorly executed awesome ones!!!So, IDEAS never matter. Its only EXECUTION that matters!!!Just EXECUTE!!EXECUTE!!

 

2. Super Angels:

I had very bad-experience with this word. Different people explain “Super Angels” in different angels. I will try my best to keep it as simple as possible. As the word itself quotes SUPER,I think you might go into some guessing.

Super angels evolved with changing times. Super angels carry some genes of the Angels and some genes of Venture Capitalists. They suit the present day startups which showcase a higher valuation and are reluctant to give the power Venture Capitalists demand in the start-ups.

Super angels are people who have professionalized in investing their own money summing up with the money of other individual investors. And, many investors were some day or the other was an Angel. They are agile, less demanding V.C’s.They invest from $10,000 to $1,000,000.

As they are superior to angels, they work out things very fast. High valuations are not a threat unlike in Angels.Super angel’s generally don’t provide you with any Board Member and decision taking power is in your hands. (I don’t think founders like you would love to transfer the power into other hands.)..But don’t pay a deaf ear to their less quoted strategic advices. They are much more experienced than you are.

Unlike VC.’s Series A Round you needn’t give away one-third of your company in Angel Rounds. What they want is only a percentage of the company. So, this signifies the fact that company is still under your grip and can play to your tunes. Super Angels gets the fund quicker. You needn’t move around the offices for days together.And,these points are what makes the budding entrepreneurs reach Super Angels.

BRUNCH POINT:

If you are planning to sell your start-up in the near future or get it under a Corporate giant then go for Super Angels.
In other words, if you don’t have goals of a “Next Google”, then go for it!;)..Take a wise decision.

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