Funding your new enterprise

Today’s generation is being universally praised for its ambitious, go-getter attitude and its courage for not letting financial constraints stand in the way of career goals. New enterprises and entrepreneurs are a vital sign of an economy’s health. There are many ways to get your plans across to investors, but you would still have to convince potential investors of the viability of your plans.

One of the most obvious methods to start a new business is by paying out of your own pocket, otherwise called Bootstrapping. It may require you to save money over time, or use funds earmarked for a contingency.

In case your start-up needs large capital funding, associating with a partner who has deep pockets is a safe alternative. By one estimate, 28% of all globally renowned business entities had co-founders precisely for this reason. However, the commercial goal of your partner should be same as yours. If you have friends or family that have the means to collectively fund your enterprise, go for it.

Informal funding sources: The most democratic method to raise money is crowd-funding. As an entrepreneur, you can pitch detailed business plans and the amount of fund necessary on the crowd-funding platform. Users of the platform can read this information, and if it strikes a chord with them, they pledge money or pay any amount as donation. Note that, because crowd-funding is a highly competitive arena, you are unlikely to garner finances if someone else has a better idea.

Venture capitalists are organisations that have corpuses of pooled funds from their members, or the public. They scout for promising start-ups with high growth potential. They buy equity in your firm in exchange for funds. The advantage of a VC is that they also provide mentorship and expertise while periodically evaluating the business for sustainability and scalability.

Another variety of financers are angel investors, who may be individuals or groups with surplus cash. They may be successful businessmen with an interest in supporting upcoming start-ups.

If you live and operate in a major city in India, your search for funding is likely to lead you to platforms called incubators or accelerators. Incubators allow start-ups access to space, training and value chain networking in a bid to help them develop. Accelerators simply do the same thing on a larger scale and often help existing businesses reach maturity faster.

Angel network

For instance, the Jain International Trade Organisation (JITO) is a body of successful Jain businessmen, knowledge workers and professionals covering various fields across the globe. It organises a programme called “Investor Pitch Day” in various metropolises in India, where JITO’s angel network hears pitches and presentations from potential candidates, while others participate simply to learn from the experience.

The ventures that attempted to seek funds include, Clinivantage, a healthcare initiative that partners major hospitals and laboratories along with the government to enable last mile access to remote and impoverished communities, Stylenook, which makes and delivers clothing articles as designed by consumers, and Satva Ras, which manufactures and markets completely natural, fresh cold-pressed juice. Altogether, JITO has received $3 million worth of proposals, of which, $1 million have so far been executed.

Formal sector funding: The options discussed above are relatively new age and easier to access. However, banks and microfinance institutions have traditionally been there to help with either working capital or initial funding. While the former lets you complete one revenue-generating cycle without any hitches, the microfinance institutions require that they assess your business plans, assets and competencies quantitatively before sanctioning a loan. Since, there is still room for a qualitative evaluation, the process may not be altogether objective.

Apart from banks, the other authoritative option to meet funding requirements is the Pradhan Mantri Micro Unit Development and Refinancing Agency Limited (Mudra) scheme. This public fund is disbursed to entities in the micro-enterprise sector. You must submit your detailed business plan, and if that gets approval of the authorities concerned, you will be sanctioned a loan. You will obtain a Mudra card, which functions like a credit card with which you can purchase raw materials and meet other operating expenses.

(The writer is founder, Chairman, ICA Edu Skills)