(This article was published in the bimonthly newsletter of Electrical Technocrats Association – E.T.A)
Many have the perception that funding is a huge barricade to start a venture. It is said that people usually turn to people called Three Fs i.e., Family, Friends and Fools to raise funds, apart from a fourth personality, father in law. This is how the traditional way of raising funds takes place. Banks also offer various schemes for entrepreneurs. Various such schemes are backed by government plans.
As these are quite known to everyone, let me introduce certain ways of raising funds, which is becoming popular nowadays.
The most popular ways nowadays are
ü Angel funding / Seed Capital
ü Venture Capital
ü Private Equity
There are firms and individuals who provide such funds. Once they invest in your business plan, they may have a share in your business and also advise you on various decisions making. They also help you in expanding your business network. Since they have invested money, they would expect the returns in leaps and bounds.
Angel Funding/Seed Capital
Angel funding or seed capital is nothing but the initial investment that is required to develop a prototype of test the idea. These funds are provided by angel investors who help in early funding.
If the prototype of the business plan proves to be successful, then it will be easier to get a venture capital for your idea.
Venture Capital
Venture Capital is provided to ideas that have been proved successful. It is extremely difficult for a fresh idea to get venture capital, unless the idea is really innovative or extremely attractive.
The fund is provided by a venture capitalist or by a venture capital firm. The venture capital may be limited to a time period after which, the investor breaks up selling his shares off either to another person or in the stock market.
Private Equity
Private Equity is usually sought by firms that running very successfully in the market. To expand the business, they may seek funds from investors and give them a share in the business.
By raising funds through any of these ways may reduce the freedom of the entrepreneur in making the decision as the investor may also have a huge role in making the decision. At the same time, the investors are aware that freedom should be given to the entrepreneur to make the idea a successful one.
With such schemes in place, funding to start a business should not be a barricade to start. But the big challenge is convincing the investor about the idea, which usually doesn’t happen very easily. But being confident in the business idea, will surely help in convincing the potential investor.
Let us look at the organizations supporting entrepreneurship in the next newsletter. Till then, keep your feedback posted.
The author is the Founder & C.E.O. of Ulaginoli Energy Solutions and can be reached at boniface@ulaginoli.com or +91 9884342050
