Having a great concept and a strong drive to succeed is no longer enough to operate a successful startup in today’s market. If you’re an entrepreneur looking to grow and develop your business, you should think about funding options as well.
According to surveys, one of the most prevalent causes for small business failure is a lack of capital. Here are a few reasons why start-ups require finance:
Why is startup funding required?
1. Build a solid foundation for your startup idea
Additional financing and a larger team are often required to turn an initial concept into a successful product. Funding enables acquiring industry specialists, investing in production costs, and smooth operations during the development period.
2. Seize the market at lightning speed
By enhancing your marketing and sales efforts you can grab as much of the market as possible if you have a game-changing concept that is well-received.
3. Leverage Investor’s business connections
Apart from funding, investors might be able to evaluate your business model, develop a pilot, and help connect you with the first consumers.
4. Grab attention from the market and potential investors
Funding boosts your profile and attracts market interest. It adds value to your business and shows potential partners, customers, and investors that you are a viable option.
5. Additional Funding enables you to achieve more
With more finances at your disposal, you may hire top talent specialists for the company’s future development and dominate the market with cutting-edge solutions, thereby earning a respectable position among competitors.
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Below mentioned funding guidelines from the startup India-a government of India initiative can help startup founders well prepared for fund-raising rounds
Funding guide for a Startup
1. Evaluate the need for funding: The startup should create a milestone-based strategy with specific timetables for what it wants to accomplish in the following two, four, and ten years. The costs of production, prototyping, research, and manufacturing, among other things, should be carefully calculated. The startup can use this information to determine the purpose of the next round of funding.
2. Evaluating the readiness of investment: If you can persuade an investor that your revenue estimates and returns are realistic, they will take you seriously. In a potential investee startup, investors are searching for the following characteristics:
- Growth in revenue and market share
- Return on investment that is favourable
- Break-even and profitability times
- The startup’s uniqueness and competitive advantage
- The entrepreneurs’ vision and aspirations for the future
- Team that is dependable, dedicated, and skilled
3. Pitch deck preparation: It’s all about delivering a compelling tale when it comes to putting up an investment pitch. Your pitch shouldn’t be a sequence of discrete slides; instead, it should flow like a tale, with each part connected to the next.
4. Attracting investors: Every venture capital firm has an Investment Thesis, which is a strategy followed by the venture capital fund. To find suitable investors, you’ll need to look into their Investment Thesis, their previous market investments, and chat with entrepreneurs who have successfully secured equity capital.
5. Interested investors should conduct their own due diligence: Before concluding any equity deal, angel groups and VCs perform comprehensive due diligence on the business. They examine the startup’s previous financial choices as well as the team’s credentials and experience. The funding is finalised and closed on mutually accepted conditions if the due diligence is successful.
6. Term Sheet: It is a “non-binding” set of propositions put up by the venture capitalist during the initial stages of a deal. In India, a term sheet for a venture capital transaction generally includes 4 main provisions: valuation, investment framework, management structure, and share capital adjustments.
What are the characteristics that investors look for in a startup?
- Goal-setting and problem-solving.
- The founders’ and team’s abilities to move the organisation forward.
- Historical and expected market growth rates.
- Scalability in the foreseeable future, as well as a sustainable and secure business plan
- A thorough financial business model displaying cash inflows through time, major milestones, break-even thresholds, and growth rates.
- Exit alternatives such as initial public offerings, acquisitions.
Startups need funding in order to cope with a number of processes, including gaining momentum, ideation, and expansion. That’s why startups choose ‘startup funding’.
The Indian government established a fund of INR 10,000 crore to improve capital availability and stimulate private investment, accelerating the growth of the Indian startup ecosystem. This comprehensive funding guide will help founders in their journey of fundraising.
How can Coffeemug help you in fundraising?
Through Coffeemug’s artificial intelligence (AI) approach, we link entrepreneurs with the proper angel investors. If you have any further queries on why Is startup funding required? get connected with a wide network of investors.
Q. What methods do startups use to raise funds?
A. Self-Financing your business, or get an Angel Investor, or through Crowdfunding, through Government Loans, Bank Loans. etc.
Q. How does the Government of India support startup funding?
A. The Startup India Seed Fund Scheme and the SIDBI Fund of Funds are two lending programs launched by the government to give collateral-free financing to budding entrepreneurs and enable them to acquire access to low-cost funding.
Q. What are the funding criteria?
A. A clear aim with well-planned goals, purposes, activities, and a mechanism to monitor outcomes and effectiveness.