Four ways to raise funds
As a business takes shape from an idea to a venture, entrepreneurs face the biggest hurdle to growth – finance!
1. How much money does a business need? You can determine this based on the business plan. Money could be needed for creating a prototype, market expansion, team hiring, capital expenses or working capital — and the time period varies accordingly. Based on your growth plans, some money may come from profits of the company, and the rest of the gap has to be filled by external investments. So when you approach investors, ensure that you know how much you need, for what and for how long.
2. Various ways to raise investments: Primarily through debt/loan and equity/shares. Debt funding comes with additional burden of interest, while equity funding requires sharing of some percentage in the company, along with board participation and other terms. Other ways like customer advance, revenue sharing, credit card, overdraft facility from banks, vendor financing, etc, can also fill cash needs. Do basic research of the drawbacks and benefits of each kind and then decide.
3. Stages of investments: Early stages require seed investments. As the venture grows, angel investors can come in and invest money to fuel growth. Incubators can also provide some space and initial funding. Venture capitalists (VC) come in at the growth stage and Initial Public Offering (IPO)
happens at a mature stage of
4. Types of investors: Investors who can provide funds include angel investors, venture capitalists, private equity, IPO, banks, incubators etc. Angel investors are those who invest between `50 lakh-two crore in the early stage of a venture. Venture capitalists invest over `5 crore in a growth stage venture. Private equity investors do higher investments (whether as debt or equity) ranging from `50-500 crore. IPO is well suited while raising investments on the stock exchange and can be over `50 crore. Banks can also provide funding as debt — the norms will vary depending on collateral or it may be without
security like Credit Guarantee Trust for Micro and Small Enterprises scheme n
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