While raising an idea into a business venture, Seed Funding or Venture Capital is the most important factor. At the same time, it is also the most difficult task too. The aforementioned funds can vary from thousands to lacs & even crores, depending upon the size & kind of business layout. In order to meet the estimated amount, the organization can seek for funds from friends, family, angel investors, or venture capitalist. The approximation of the funds required, the selection of the investor, & the peculiarities of the deal or contract—together makes funding a complex process. But worry not! We’ve simplified this elaborate process for you into three easy divisions: Understanding, Preparing & Implementing.
Phase 1 – Understand the Process of Generating Investments.
Like any task or job, understanding the process is the foundational step for funding or generating investments. You need to ask yourself the following questions before seeking to fund your startup:
How Much Seed Funding Do You Need ?
Estimation of the funding required is important. While the first intent would be to gather as much as possible because money is always needed; however, the funding should be calculated & formulated as per the business expenses, outlays, & extra charges. The amount thus varies from business to business. Therefore, every organization should estimate & then quote an apt amount to the investors.
What kind of investment do I need?
Broadly there are three investment forms:
Equity: This sort of funding involves evaluation of the company & fixation of investor shares in your startup. While it asks to give up ownership, it also takes care of ongoing payments. However, since it involves a lot of complexities, small-time firms do not seek equity investments.
Debt: This is the old-tested way of lending & returning. This type of funding preserves ownership, but at the same time, it tends to become difficult to maintain the interest rate amount when your company hasn’t generated any profit.
Convertible Notes: This starts as loans & turns into stock. Since it is a combination of the two it allows the owner a greater flexibility & freedom in operations & finances.
Whom to seek for investment for Startups in India ?
Friends & Family: For small time businesses that are looking for small-scale investment, seeking funds from friends or family could be the best option. This allows for huge adaptability & fewer complications & hence is better than turning outside to investors. E.g.: Father, mother, a relative or a close friend, etc.
Crowdfunding: After friends & family, seeking funds from crowdfunding is the second safest option. Here, you seek small investments from a large group of people. This also provides free marketing because of the number of people involved in the process. E.g.: Bluffworks and Selfie With Me.
Grants: Businesses involved in certain operations like research & development can enquire for grants or finances from the government. Although extermely selective, this offers a low rate of interest.
Angel Investors: This type of funding involves guidance & strategic advice from the fund-givers along with the money. These investors usually look to invest a small amount in the early stages. They can help a business grow with their financial & strategical assistance. E.g.: Jeff Besoz, Jeff Clavier, and David Lee.
Incubators & Accelerators: These are organizations or programs that help developing hundreds of startups every year. They offer guidance, mentorship, & marketing knowledge along with the financial assistance. They are often sponsored by universities, industry organizations, or individual companies. E.g.: ACIIE (from Ambedkar University of Delhi)
Am I aware of the legal laws & procedures?
Generating funds involves financial tie-ups. These tie-ups usually include clauses, conditions, & specifications. The fund-seeker needs to be aware of the security laws so as to not to subject themselves and their startup for unnecessary penalties or fines. Moreover, a startup is also an intellectual property. Hence, the owner needs to protect it by patenting & trademarking it. They also need to take care of licensing needs, distribution arrangements. Here, having a guide or a professional hand is really helpful.
Phase 2 – Preparation for Pitching Your Startup Idea to Prospective Investors.
The second phase of preparations is just as important as the former one. It not only involves pitching to investors but also looking after the team & its demands & future as well.
Pitch to Investors:
Taking money from somebody to invest in your business seems likes a tricky task. It employs a number of approaches & techniques to seek that funding. While doing that, one needs to be well prepared for any situation & condition. For that, you’ll require a business plan, an executive summary, a presentation deck, an elevator pitch & even consideration of NDA (Non-Disclosure Agreement).
Looking after the team:
In order to propose a fitting and suitable pitch to the investors, you need to seek inwards too. This should be done by building a team of advisors. Besides, it would also require understanding your own company term sheets like voting rights, board representation, valuation protection etc. Needless to say, the company also needs to look presentable and therefore, it needs to be flawless & well-groomed for that. This incorporates preparation & management of balance sheets, sales forecast, profit & loss statement, cash-flow statement etc.
Looking for team’s demands & future:
In addition to having a presentable team, and a pitch ready approach, the owner needs to be disciplined with marketing & advertisement. They also require awareness towards milestones & probable objectives & obstacles.
Phase 3 – Implementation of Your Fund Raising Plans.
Having taken care of the first two critical phases, the third and the final step involves consideration & assembling of the other two. This phase involves the actual process of going around, seeking funding, taking rejections, & then actually raising the funds. The fund-seeker in this phase requires persistence and diligence more than ever. A good business-plan is must. It would demand envisioning, & improvisation in case the fund-seeking fails.
In the starting phase, any startup or business model requires finances & marketing-designs. With no liquid money at hand, a lot of businesses fail to implement a lot of ideas & that being the case funding is crucial to keep the business going. As discussed above, this funding requires a lot of thinking & arrangements.
Incubators like ACIIE can help such ventures raise capital alongside assisting them. Established by the Ambedkar University of Delhi, the center works on Dr B. R. Ambedkar’s philosophy of bringing about a social change. The organization has been set-up at AUD as a non-profit section-8 company within the larger vision of the university. They operate by mentoring, guiding and funding ideas and ventures in applied fields, such as business, design, development practice, education, ecology, mental health and more. Ultimately, they remodel such ventures into profitable and sustainable trades.