Summary :
‘Funding’ is the recent hot favourite word and nowadays used prominently everywhere across the world. Quite a lot of buzz has been created around this word in the past few years. ‘Lala’ businessmen do not need it, whilst businesses intending to grow professionally are running behind it. In this write up, we take you through the various modes of funding and how the funding space has been evolved over the years.
Content:
We delve upon various kinds of possible funding avenues that a Business may explore based on the stage of its operations and the amount of requirement. There are multiple facets for each kind of funding, but we take them on here in a sequence which is generally followed by a business. The sequence will take you through the journey of a business from kick-off to being a billion dollar business. And we start with …
1. Bootstrapping
This is the simplest. Starting a business with your own / personal funds and managing the show with funds generated from revenue is called ‘Bootstrapping’.
So, how is this different from ‘Lala’ businesses?
Nothing at all.
Businesses not generally managed very professionally are termed as ‘Lala’ businesses whereas Bootstrapping is one sophisticated word which denotes the businesses to be operated by charter and / or processes and are much more organised in terms of documentation, policies, governance, etc. So as you may infer, it’s just about the perspective of the person looking at it.
The largest advantage – ‘you can be control freak and control the entire business operations and make it swing your way’. A con for this again would be the same thing when you don’t have an additional mind. And leverage of capital is not your style and therefore growth in business may be slow and limited.
In the current market scenario, Zoho and Zerodha are the ones that naturally comes to our mind when one talks about Bootstrapping.
2. Seed Funding
Seed funding is generally referred to as Funding from Friends and Family (F3). They are the initial ones who trust you in the venture and offer such amount of capital as you may need to build the idea upto a visible stage. Such seed fund help you bring idea into a visible product and support your initial initiatives of setting up prototype, obtain feedback, etc.
This is a most important stage of funding, since it gives you a capital leverage with a least probability of having potential Investor conflicts and helps you validate your business idea at a nascent stage. This really helps you understand if there is any worth in investing your time in the business idea.
Founders generally undermine this investment and don’t take it professionally. Recent issue of Paytm is the classic case of not taking the Seed funding round professionally. One friend of the Paytm founder had allegedly invested in Paytm in its initial operations and claimed not have received any shares. This came as a time bomb to Paytm at the time of its listing. It is therefore important for the Founders to treat these funding rounds professionally and have an agreement in place. And if you want any help in this space, we are just few clicks away from here.
“Our latest financial report highlights Execor’s strong growth, innovation, and commitment to delivering value. We remain focused on sustainable success and excellence."
3. Angel Investment
This kind of funding is offered by people (not from your friends and / or family) who are in possession of capital at their disposal and wanting to invest such capital in the companies at a stage from which the business has a large potential to grow in a very small amount of time. This mode of funding is quite useful for founders for them to be able to develop a Minimum Viable Product and take it to their initial customers.
Angel investors are often also referred to as Business Angel, Informal Investor, Angel Funder or Private Investor. These kind of Investors are also known to be risk takers, since this investment for them is a Punt which has a potential of either being appreciated multi-folds or may get drowned completely. No mid-way generally. These are the ones who bet on the Founders more than the Business idea and the manner in which the business idea is being implemented.
These investments are generally in the form of Equity instruments or such instruments that are convertible into Equity, in accordance with the terms and conditions which the Founders and the Angel Investor may agree. These terms are generally linked to some metrics of the business which may include the amount of turnover, number of customers, etc.
4. Accelerators and Incubators
In our earlier paras and the others that follow this section, are the modes of funding which are solely through infusion of funds. This mode is a combination of money and kind. When we say kind, this becomes little fascinating, but this also comes with some limitations sometimes.
Lets discuss more about what is this investment in ‘kind’.
Accelerators and Incubators are organisations / environments that are created by Government, Universities or Organisations formed for overall economic development.
To give you an example, you might have heard about Y-Combinator, one of the top 5 Startup Accelerator globally. They create eco-system where Startups register and gain benefits out of the community. Say for example, your Startup struggling with any tech issue may be resolved by another Startup providing such tech solutions and being inhabitant of the same eco-system. This increases your reach amongst other Startups in the community for sure.
The Investment in ‘kind’ includes such community and also provide such infrastructure as the Startup may need in terms of physical space, digital storage, workstations and connections with VCs etc.
These Accelerators / Incubators generally subscribe to Equity instruments of the Companies against their investment in cash and in kind. As an advantage, collaboration with other companies come handy with this Investment and it also expands your network within the eco-system. Accelerators / Incubators have started to publish in media nowadays, which also increases your reach/ network.
We hope this read was beneficial to you. There are a lot more avenues to cover, but as of now, let’s take some time to absorb these. In case you need assistance in either of the above, do reach out to us. We will discuss the few other methods in the subsequent release here.
