Raising Funds for new start-ups: Actions and Strategies?

Startups find it unviable to raise debt because they cannot afford to be burdened with a fixed interest payment in their early stages. Moreover they do not usually have any collateral to offer the bank and thus are constrained in their ability to raise debt. Therefore, before they raise debt startups rely on equity investment by angels. However even those investments are hard at the very beginning of the journey. The initial equity therefore, typically comes from personal savings.

Further funding without equity is usually obtained in the form of soft loans from friends and family.
In addition, startups looking to get funding without equity have a number of government sources of funds available to them. Government agencies provide grants, especially to startups that have a strong R&D component.

Startup funding without a significant amount of equity can also be provided through some incubators, Such funding of startups is usually in kind rather than in cash. Incubators provide subsidized office space, hardware and software, mentorship. In return startups may be required to repay the subsidies received over the course of their tenancy at the time they exit the incubator.

To sum up startups looking for funding without giving away shares in their venture can rely on

  • Friends and family
  • Government schemes
  • Incubators, (usually government sponsored ones)

However while looking at the question of sources of funding it is also important to look at how much funding you need. While funding is critical there are ways in which this requirement can be reduced in the early stages of a business. Here are three good ways to reduce the quantity of seed money a business requires:

  1. Eliminate fixed costs: Fixed costs are costs that get incurred irrespective of the sales of a business: rentals, equipment, fixed salaries, etc. Avoid these like the plague.
  2. Experiment, then say Eureka: Every idea an entrepreneur has appears like the ultimate ‘aha’ moment, no matter how many false epiphanies he/she has had in the past. Don’t burn your cash on your latest brain wave. Start small, and get a feel of the landscape before running through the streets of Syracuse screaming Eureka!
  3. Scrounge like crazy: You may eat (in order to live, and work on your startup) but anything beyond for you or your team can be considered a luxury. Well, not exactly, but you get my drift.

If you follow this advise you will be surprised how far your money will go.

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