BUSINESS FINANCE Innovative methods to fund a newly set up business
When you wish to start a business and you find yourself with not enough capital but are aware of someone who is interested in joining hands with you in your business, you can definitely opt for a business partner. A business partner will not just help in contributing to the capital but will also lend his hands for the functioning of the business. It is very important for the partners to have their goals aligned in the longer run.
Venture capitalists invest in businesses with vast growth opportunities and they do so in the early stage of the business. Earlier venture capitalists used to receive a share in the business but now they demand debt financing and share in the business. Venture Capitalists function on the basis of making a couple of huge wins to cover up their ample failures. It is known that three forth of the businesses receiving funding in this method fail.
The following loans knock into the protected equity one may have in their home. One can calculate how much one can borrow for the second mortgage by considering the value of the home and subtracting it by yet to be paid mortgages. The interest rates are very low compared to other sources of funding. One must be cautious as there are instances where lenders only lend up to 75-85% of the real value of the home. These are also called as home equity lines of credit.
Credit Cards are looked upon as a transitory measure between getting ones venture started and getting financing such as a loan. Credit Cards have very high interest rates which makes hardly possible for business to consider it as a long term capital. Credit Cards have mostly been used in the situations where the entrepreneur had no other alternative to get funding for his business. Even the founders of Goggle have funded their company with the help of a credit card in the mid 90s. My own uncle funded his textile business temporarily with a credit card when he had no other options.
Lending money from your family and friends can be very risky when it comes to a startup. More than 40% of times people lending from family and friends have failed. Collecting funds from your family can make the situation more complex and ruin personal relations. But if you share a very comfortable relations with your peers it is not a bad option if your business becomes successful even family and friends benefit from it. One must always remember to draw documents before indulging in the type of funding method.
Crowd funding allows the public to fund your projects using their own funds. One has to pitch in the idea that one wants to see funded. It is up to people if they like your idea or not and if they it is up to them on how much they want to invest. A lot crowd funding websites use reward base model where the investor reward as the product that they have invested in. This reward base model seems to changing to equity for reward. The popularity of crowd funding is increasing by the day and some of the crowd funding websites are Fundable and Kichstarter
Selling your products is an often-overlooked and highly effective way to raise the money needed for financing your business. Entrepreneurs can raise funds with a pre sale of their products. The biggest challenge is in coordinating the inventory delivery times from the supplier so that we could start fulfilling orders. Another challenge is forecasting the number of units we can pre sell, resulting in a shortage. Entrepreneur Priska Diaz was able to raise $50,000 for her companyBittylabwith a presale of her Bare air-free baby bottles. Her presale efforts allowed her to drive website traffic, get additional social media followers, and offer discounts to customers. The money Diaz was able to raise helped her pay for inventory, and also helped to open some doors in retail and learn about her website’s visitors. Though Diaz was able to benefit greatly from this means of financing, there were still some difficulties to overcome.
New business owners can try “double-dipping” as a means of funding their startup. Entrepreneur Alex Genadinik used his revenue from tours he organized on ComeHike.com to launchProblemio.com, which builds mobile apps for planning and starting a business. After receiving donations for some of the free hikes he led, Genadinik began to charge for events, where he marketed his new site to hikers. “I tried everything else before that, including monetizing with ads and becoming an affiliate reseller for outdoor gear, but it didn’t quite work,” Genadinik said. “This allowed me to work on my project without the distraction of looking for investors.”
Sometimes, you may have a financing method and not even realize it at first. That was the case for entrepreneur Hamid Saify, who was able to fund his opinion-sharing community,ChoicePunch, by selling a car he had wanted to pass along to his children. Though it was a tough decision, Saify was able to make $30,000 from the sale of the car. That money, in turn, went toward some very important aspects of the fledgling startup. “I used some of that money to help with the last payments to our design and development contractors,” Saify said. “The rest I put into our account and used to help support marketing during our beta launch months.”
Other times, businesses can benefit from a bit of luck. That was the case for Roberto Torres and Luis Montanez, who funded a portion of their startup costs for apparel companyBlack & Denimwith winnings from abusiness-plancompetition. “We utilized the funds to purchase manufacturing equipment that allowed us to scale our products and meet demand,” the owners said. “This advantage gave us the opportunity to increase our production and get into bigger players like Stein Mart and Walt Disney World. The competition also gave us access to business experts that asked us the tough questions while allowing us to retain our equity — a perk that would have been very difficult to obtain otherwise.”
Cutting out liabilities is another creative way for new business owners to fund their startups. For Fay Johnson, founder and editor ofdeliberate LIFE, that meant renting out her apartment. Johnson was able to do this by placing her San Francisco apartment on Airbnb and renting it out for anywhere between five nights and a month at a time.The decision has been successful for Johnson, who has used the money raised to fund the costs of the first few issues of her magazine. Though the move has allowed Johnson to finance her startup, it has not come without its share of headaches, including tight time restraints. “As an entrepreneur, time is one of your most valuable resources,” Johnson said. “When renting, I have to keep in mind that I need to clean and reclean the apartment, and since I work from home, I also have to find a place to work during those days.” ARSH BHATIA 4BBA-B (HON) 1311706
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