How do startups raise funds - Business & Economy - Entrepreneurship - TIK Share

How do startups raise funds


Rahul Rai

2014-03-29

How do startups raise funds? Banks don't offer loans unless the company has 3 years of business functioning. Any one found a way around it?

Stock Guru

2014-03-29

Here is a good reply from FB group.

These challenges are typical and requires some deft handling,and the solutions Iam proposing below are for those who are really serious about funds and are willing to go all the way.

There are no easy routes for funds and those rejected by the Banks, Angels, VC's    ( And Family ? ) It is definitely not end of the world if you know how to handle this. Because the choice here clearly is getting what you want, giving up your ideas or perpetual day dreaming!

SEED FUND: Initial seed money has to be arranged no matter how difficult, Typically funding requirements are never met in a single stroke and multi stage fund raising is inevitable.
So the very first / seed round has to be handled by the promoter(s) also raising a small 5 to 10 lac for a company which will have a valuation of 1 - 2 Crores in a year or two
before going for the next round of funding is mandatory, so even if this is the most difficult part try to make it happen.

If 2 or 3 promoters pool in small amounts reaching 5 to 10 lacs of funds should not be impossible.


SWEAT EQUITY: To put in simple terms this is the equity a person gets for his skill-competence and commitment rather than capital investment. If quality man power is required then "Sweat Equity" is the best option as it removes the burden of heavy salary commitment to deserving candidates.

Now it will be difficult to convince the top talent to work for equity against a good salary, For they could already be earning well so the promoter has to be very clear about the valuations that can be touched so that they see the logic in picking the equity. If this is effectively done then the monthly salary burden is reduced for the promoter(s). This can be considered for critical Technical and Marketing resources who contribute directly to companies bottom line.

And... Sweat Equity is not a verbal / email agreement it has to be formalized as per companies act.

1 Year of Operations: Raising / Pooling the seed money and keeping the venture running for about 12+ months is necessary by when one can qualify for some institutional assistance.

And also in about a year of operations the promoters can prove beyond doubt about the viability of the product/service and the determination to take it forward. During this phase
seed money should be raised, Sweat Equity formalized, A fully functional org structure should be in place.

It may sound a little rude here but... Those who cannot pool in small amounts of money and sustain operations for about a year should not expect to get funded... Why would any one bet
their money then?

Over Draft Facility: Just the OD facility will not solve all your issues but definitely provides a lifeline. In any case qualifying for OD could be little challenging. Also the limit offered on the OD could be less, You need good performance on your books and some good contacts as well.

Invoice Discounting: It is possible to get advances on your invoices and this falls in the category of unsecured lending and will provide liquidity in the short run, And it also depends
on the quality of invoice. Many people are just not aware of this
option.

No Collateral Loan : Also its possible to get loans without collateral its tough but definitely possible you just need the right consultant to guide you through the process.

Collateral Arrangement: Its possible to arrange for 3rd party collateral which can be leveraged to obtain loans its again very tough but there are many examples of people who have
successfully done this. If your entity is Private limited then take the person on-board and leverage! But this could be difficult if its sole proprietorship / partnership entities.

There are few more, I'll just stop here, Important ones are covered...

Things that "May Not Work"
1. Mindless and endless networking ( Online / Offline
2. Doing same things and expecting different results
3. Not willing to pay for various services
4. Pouring money on social media without tracking it for effectiveness
5. Expecting the experienced consultants to work for FREE !!
6. Not having clarity on how to get funding and dragging the process

Reply

Mansoor Shaikh

2014-06-24

Submit to startup website that have field about funding.

When you start up they will call the invester and you will have funding for your website.

 

Regards,

Mansoor

Megavenues

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