10 Funding Options for Early Stage Startups

The term “funding” refers to the funds needed to start and operate a company. It is a monetary investment in a business for product growth, production, extension, marketing and business, office space, stock, and so on.

You feel it extremely important to raise funds for your startup, but before you work on it, ask yourself few questions.

  • Why am I attempting to raise funds, and what aspirations am I boosting?

Well, you’ve started a business and plan to raise funds. Wait a minute, do you still want to fund?

  • What part do you want to play in the funding process? What part will you play after that?

When a company matures, the questions that entrepreneurs must pose before finding investment can change from financing period to financing cycle.

  • What qualities do I look for in an investor?

You must have an idea about the type of investor you want for your startup. Without knowing the investor, you are not ready to prepare a pitch deck or pitch.

  • Will you meet the expectations of investors at this point of funding?

Certain industry fundamentals should be clear to any investor or business person. However, what investors want and need while writing a check will vary with each round.

  • Are you ready to answer investor questions about funding for startups? “Specially for early stage startup”

It’s fantastic to have a sleek pitch deck and perhaps a strong auditory pitch. Being ready to respond to the questions that investors can toss at you and hold you to the challenge is a whole different story.

You can think of more strategic questions like this. This will help you with your decision.

Now, when you feel you are ready, you should find out what funding options are most appropriate for your startup.

Here is the information that covers 10 funding options for early-stage startups to help you raise capital for your startup.

Self-funding or Bootstrapping: One of the Top Funding Options for Early Stage Startups

You are just getting started, bootstrapping your business is what you’d like to start with for fundraising purposes.

If you are ready with the questions in mind that we have talked already about, you may find it less difficult to approach the funding. However, self-funding is a different story, you can fund from your savings or solicit contributions from family or friends. Of course, you are not just borrowing money from them, give them some benefits.

This would be easy for you as compared with other fund-raising methods. Because of small formalities, and lower raising prices, bootstrapping your startup is what you’d like to consider first…

Angel Investors

We believe you are already aware of the term of Angel Investors. Talking in most simple explanation, these are the people who invest their money in companies they find, can be lucrative in the future.

Before you plan to meet an angel investor, assure yourself you are ready for it and have a strong business plan projection.

Funding with the Angel investors has advantages and some other prospects what we call disadvantages. However, these should not be the reason to make your plan to invest with Angel investors.

Talking about those negative prospects you might find less comfortable during the fund-raising process with investors;

  • You may find investor expectations from investment less attractive, there is a vast amount of money at stake. They are like another person investing money in expectation of returns.

It is not uncommon for an angel investor to predict a return on investment equal to ten times their initial investment within just five to ten years.

  • The probability is high of the Angel Investor would take part actively that may impact the outcome of the business. You must be comfortable allowing someone who isn’t acquainted with you or the company to play a part in how it is operated.

Incubators and Accelerators for Startups Funding

Early-stage businesses can find Accelerators and Incubators as an option for their startup funding. These services usually last for about eight months and cause a time word from the company owners.

Startup accelerators help startups get off to a good start by offering resources such as funding and professional advice. Startup accelerators play an important part in the creation and dissemination of innovations. Meanwhile, Incubators help startups at a different level that they foster the company by offering protection, equipment, instruction, and a system.

There are names like; Angel prime, TLabs, Amity Innovation Incubator, CIIE, IAN Business incubator, Villgro that intend to generate financial support…

Term Loan for Businesses

The term loan is a long-term loan. When investors like the pitch and see the benefit of investing in a business, they’d be willing to approach the term loan to support the business with capital.

They will range from up to 20 years in duration, either with a fixed or floating interest rate.

Microfinance Providers or NBFCs Loan for Business

Microfinance is a great alternative to bank loans for startups who don’t just qualify for their business loan. This is becoming pretty widespread among those whose needs are constrained and those whose credit scores are not desired by banks.

Microfinance enables individuals to take out fair small business loans easily and under responsible capital requirements.

Non-banking finance companies are abbreviated to NBFCs. Because of the obvious adjustable loan agreements and far less strict qualifying requirements, businesses favor NBFCs for funding.

Venture Capital for Early Stage Startups

Venture capital funds are actively running investments in high-growth businesses. A venture capital fund could be suitable for small companies that have progressed past the growth stage and are now producing income.

There are a few limitations to using Venture Capitalists as a financing source. If you are providing services or launching a product and that you need funding for, but for some reason If the idea takes longer than that to reach the market, venture capitalists will be less comfortable with you.

They usually seek bigger markets that are secure, as well as businesses with a solid team of people and decent momentum. You must still be pragmatic in your company and often quit a little leverage. If you cannot feel comfortable with all these terms, then you’d better be with other options.

Crowdfunding for Startups

Crowdfunding is a relatively modern method of funding a startup that has grown exponentially. It’s much like accepting a deposit, pre-order, donation, or expenditure from several people at a time.

When a startup does not even have ties to investors, crowdfunding is an excellent option.

The concept is simple to understand; On a crowdfunding site, a business can post a concise overview of its project. Like Makuake which is Panasonic’s Japanese crowdfunding platform which raised $95,000 for the project Nicobo. The business has to discuss goals, products or services, the funding required, and the purpose.

If consumers like the business idea on the crowdfunding platform, they give money to support the idea. It’s like pre-ordering the product, service, or just donating.

However, understand that crowdfunding is a challenging way to raise money unless the company is completely pretty reliable and can capture the interest of ordinary customers with only a summary and a few photos online, you might find crowdfunding difficult to be beneficial in the main.

Working Capital Loans

Working capital loans are short-term loans for businesses with manufacturing in priority. The bank or alternative investor provided working capital loans to fund a business’s day-to-day expenses.

However, such a loan always comes with cons like;

  1. High interest rate,
  2. The working capital loan works with the owner’s credit. Small business usually has no record of cash flow. If a business misses the payment, this would affect the person’s credit score.

Invoice and Equipment Financing

Invoice Financing is a way for companies to take funds by using their high-value outstanding invoices as security. Banks include certain loans for 80% of the value of an invoice, with the rest due until the invoice is completely charged.

Startups that are dealing in product manufacturing and production can avail loans on equipment financing.

Banks provide special new or startup business finance for the procurement of necessary and expensive machinery, with amounts ranging up to 25 crores, however, some banks range up to 100 crores.

Government Schemes that Support Startups and Indian Businesses.

The Indian government assists startups and businesses through a variety of plans and schemes. The PMMY (Pradhan Mantri Mudra Yojana) program of the Government of India assists MSMEs. Commercial banks, cooperative banks, MFIs, NBFCs, RRBs, and other financial institutions make these loans available.

More on this, these loans are further divided by category according to business status. Shishu, Kishore, and Tarun are for a category in which the scheme is divided.

Shishu offers loans of up to 50000. Meanwhile. Tarun and Kishore offer loans range from 5 lacs to 10 lacs.

PMMY is not the only option that the government support, you can get a loan under Startup India, MSME, MUDRA (Pradhan Mantri Micro Units Development and Refinance Agency Limited)etc.

Also, the state Government running many other programs to encourage startups and small businesses like Kerala State Self Entrepreneur Development Mission (KSSEDM), Rajasthan Startup Fest, and Maharashtra Centre for Entrepreneurship Development, etc.

If you meet the eligibility criteria, nothing can come closer to the Government funding scheme to encourage Indian startups and businesses. You just ought to be mindful of the many government policies.

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