Question

Management would like to raise funds ASAP for an immediate opportunity without paying floating interest rates or pledging collateral. They do not wish to loose shareholder control either. What option do you suggest?

Answer 1

There are plenty of options available in the market in which you can raise funds easily and do not have to pay floating interest rates or pledging collateral and without loosing control of shareholder too. So I am writing below the available options and you can choose from the.

1. Crowdfunding as a funding option:

Crowdfunding is one of the newer ways of funding a startup that has been gaining lot of popularity lately. It’s like taking a loan, pre-order, contribution or investments from more than one person at the same time.

In this method an entrepeneur or manager will put up a detailed description of his business on a crowdfunding platform. There are various crowdfunding platforms are available online. Then he has to mention the goals of his business, plans for making a profit, how much funding he needs and for what reasons, etc. and then consumers can read about the business and give money if they like the idea. Those giving money will make online pledges with the promise of pre-buying the product or giving a donation. Anyone can contribute money toward helping a business that they really believe in.

Why you should consider Crowdfunding as a funding option for your business:
The best thing about Crowdfunding is that it can also generate interest and hence helps in marketing the product alongside financing. It is also a boon if you are not sue if there will be any demand for the product you are working on. This process can cut out professional investors and brokers by putting funding in the hands of common people. It also might attract venture-capital investment down the line if a company has a particularly successful campaign.

Also keep in mind that crowdfunding is a competitive place to earn funding, so unless your business is absolutely rock solid and can gain the attention of the average consumers through just a description and some images online, you may not find crowdfunding to work for you in the end.

Some of the popular crowdfunding sites in India are Indiegogo, Wishberry, Ketto, Fundlined and Catapooolt.

In US, Kickstarter, RocketHub, Dreamfunded, Onevest and GoFundMe are popular crowdfunding platforms.

2. Angel Investors

Business angle or informal investor or an angle investor, is an affluent individual who provides capital for a business start-up and early stage companies having a high-risk, high-return matrix usually in exchange for convertible debt or ownership equity. Venture capital is a type of private equity capital provided as seed funding to early-stage, high potential, high risk, grown up companies/entrepreneurs who lack the necessary experience and funds to give shape to their ideas.

1. It is basically equity finance in relatively new companies.
2. It is long-term investment in growth- oriented small or medium firms.
3. Venture capitalists not only provide capital but also business skills to investee firms.
4. It involves high risk-return spectrum. Funding: Obtaining venture capital is substantially different

from raising debt or a loan from a lender. Lenders have a legal right to interest on a loan and repayment of the capital, irrespective of the success or failure of a business.
SFIs were established to meet the long-term financial requirement of such enterprises on economic and social ground. These Specialized Financial Institutions in India are not only committed to financial services but are also devoted towards playing a role of a promotional “mentor” and technical advisor to a wide range of the upcoming and existing entrepreneurs. Thus, these Specialized Financial Institutions (SFIs) make an important source of medium and longterm financing amongst all the financial institutions in India, to the industry.

3. Venture Capitalist

Venture capital is an equity based investment in a growth-oriented small to medium business to enable the investors to accomplish objectives, in return for minority shareholding in the business or the irrevocable right to acquire. It is a way in which investors support entrepreneurial talent with finance and business skills to exploit market opportunities and obtain long-term capital gains.

The private equity capital provided as funding to early-stage, high potential, high risk, growth up companies/entrepreneurs who lack the necessary experience and funds to give shape to their ideas. Accordingly, it is more accurate to view and go for venture capital broadly as a professionally managed pool of equity capital. Venture capital is a way in which investors support entrepreneurial talent with finance and business skills to exploit market opportunities and obtain long-term capital gains.

Since VCs have a responsibility to achieve certain returns for the firm or fund, they want scalable and cash-flow positive companies with proven and scalable products and businesses.

If your company satisfies these requirements, you could apply for an investment with a VC firm. It’s not the easiest thing to accomplish, but plenty of small businesses have done it successfully.

Your pitch is crucial to obtaining funding. Sequoia, one of the most successful VC firms on the planet, stresses, “you need to convey the main reasons why an investor should love your business in the first 5 minutes.” Sequoia partners state you can do this in three simple steps, which are:

• Explain what’s changed. Detail the innovation, industry shift, or problem that presents substantial opportunity for your company.
• Explain what you do. In one sentence, show how your company can capitalize on this opportunity.
• Explain the facts. Get to your company’s story and financials quickly. Lay out the opportunity with numbers. Discuss the team and their abilities and experience.