In layman terms, funding is the act of providing money or other financial resources, either as an investment or as a loan or even as a courtesy to an institution to help with its functioning. Funds available to young startups today can be briefly classified into many classes. For further clarity, let’s examine the different Funding For Startups.
Typically applied in companies which involve a single person being the head or smaller businesses in general.
Like the sole proprietorship or a one person company (OPC). While this does not count as funding in the conventional sense because not money is being “raised”, this is a method to generate capital.
In this method, the person or people working in the company put in money for their company from their personal savings and assets. No approaches are made to external sources seeking money or investments of any kind.
The Funding For Startups focus remains on using personal assets. And finances to get the company up and running to yield profits.
One of the best things about bootstrap funding is that it prevents other parties from developing an interest, read share, in your company and its profits. This type of funding is sometimes called as self-financing.
As evident from the name, crowdfunding is a method in which small amounts of cash is collected from a massive crowd of people.
This crowd of people could be from your personal friends’ circle or acquaintances or even absolute strangers (this would be rare because why would any stranger give you free cash?). However, there’s a possibility that it could get harrowing.
When you are burdened with the pressure of running a company. That has added pressure of having to go through your personal network asking for money might not be ideal for everyone.
Crowdfunding can be further classified into three based on the nature of funds. They are –
Business angels or informal investors are typically individuals or institutions that have done very well for themselves. Are affluent enough to provide Funding For Startups without expecting much in return.
Investments are made in personal capacities and shares or ownership expectations are almost null.
Often, the first round of funding you raise, the seed round, is from angel funders.
Also Read: Best Food Waste Apps For Sustainable Eating
For first-time entrepreneurs, angel funders are more favorable than any other kind because they not only bring in cash; they often bring in some valuable experience and guidance.
Simply put, angels are folks, typically successful businessmen themselves, who are looking for opportunities. To raise successful entrepreneurs without expecting much in return.
As the name suggest, this is a method Funding For Startups by borrowing cash. The source from which you borrow could vary and this gives rise to the various types of debt funding. They are –
Small bank loans: Loans designed specifically for rising business, having lower interest rates and is designed to be easily available. Irrespective of whether your business does well or not, you will have to pay back the cash that was borrowed from the bank.
This the probably the most popular and familiar type of funding. A venture capitalist (VC) is typically a private investor willing to provide financial assistance to a startup that shows promise.
This is a form of equity financing with the investor standing a high chance of making massive profits if the company does well.
VC funding actually is a kind of debt financing with equity being the collateral against which money is given to the entrepreneur.
Also Read: List of Chinese funded Companies in India