Where can you raise funds for your startup? What are the different modes of funding? What are the different sources of funding?

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Links for the startup funding series:
Part 1 - Pre-Requisites for Funding - [ Ссылка ]
Part 2 - Sources of Funding - [ Ссылка ]
Part 3 - Process of Funding - [ Ссылка ]

If you need any help with your business planning and funding exercise feel free to contact the team at Bplan Experts ([ Ссылка ]) .

Let’s start with the different forms of funding.

Firstly, we have equity investments. This is definitely the most popular and most talked about avenue for startup funding. These investments are done in lieu of shares or equity in your startup.

Then we have the debt investment which would have a repayment timeline and incur interest rate. Debt investment are primarily in form of long term loans (personal or commercial) and short term loans in form of invoice debts and working capital loans.

The third form is royalty based investment. This a very interesting mode of funding. In lieu of funding you pay the investors a structured royalty which is a portion of the sales. The royalty may be of a limited timeline, variable rate or perpetuity based on the investment agreement.

Convertible bonds and convertible equity are also another form of funding. Under this mode the stakeholders would have an option to interchange between debt and equity investment based on a pre agreed terms and timelines.

Now let’s see what are the sources of funding.

I always recommend that you start with bootstrapping. Bootstrapping is when you put own money or borrow from friends and family to setup your business. Bootstrapping inculcates the entrepreneurial discipline and financial responsibility to run a lean business.

Crowd funding is also an option where you can raise funds through crowd funding platforms like Kickstarter but unfortunately Indian regulation only allows crowdfunding for some non-profit businesses.

Participating and winning Startup competitions can also help you to accumulate some funds along with gaining some credentials and as well as getting some media mentions.

These were the options for initial setup.

Then we have startup platforms like incubators and accelerators. These usually play a role in very early stage of your business primarily pre-revenue. Accelerators and incubators support the startups with a small amount of funding, mentorship, networking opportunities, resources and workspaces.

You should also research the government programs like subsidies, funding and grants that are available for your business sector and ensure you understand the parameters to qualify for these.

The third source of funding is from equity investors. Under this category you have the angel investors who would invest their own money and Venture Capital or VC firms, who manages funds aimed towards specific startup sectors and stages. For matured businesses there is Private Equity or PE firms.

The fourth source of funding is debt investors which is usually banks and commercial institutions. The crudest form of debt funding is through credit cards. I have interacted with a lot of founders who actually funded their initial business expenses through credit cards. I would not suggest this unless it’s a dire necessity. Because credit cards tend to have extremely high interest rates along with the personal liability to pay back. The second form of debt funding is personal loans. You can get a personal loan without a business plan. Personal loans would also have a personal liability to pay back and interest rates are comparatively higher than commercial loans. Which brings me to the next form of debt i.e. commercial loans. This is the most popular form of debt investment for businesses. Unfortunately commercial loans from banks and lending institutions is very difficult for a startup and usually requires collateral.

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