Strategies to Secure Funding for Your Startup

Securing funding to scale and grow businesses is one of the most important steps for any startup. Investment from several funds and companies is needed to succeed in a competitive market. The fundraising process involves convincing investors while preparing your business with the potential for growth and profitability. This article explains the strategies and approaches that help entrepreneurs secure funding to grow their businesses.  

Entrepreneurs need to ensure that they have enough funding to maintain their position while also investing in future growth. Research shows that around 40 percent of startups get closed due to insufficient funding. Any business needs funding to invest in equipment, product development, technology, and other resources to expand its services. This is also the reason why every entrepreneur needs to know the strategy to secure funding and unlock their business’s full potential.

Find your funding needs and create a strong business plan.

Knowing your funding requirements is the first step before approaching investors for funds. Entrepreneurs or business owners should know how much capital they need to raise and how exactly they plan to use this amount. This allows investors to see the clarity of your business plan. To determine the funding needs, one should start by evaluating the business’s finances, estimating operational expenses, and identifying flaws and potential gaps in the business model. 

Before raising the funding amount, you should remember that with this money, you need to invest in product development, marketing, legal, or team expansion. A clear understanding of business and your plan will make your calculation for raising the amount more precise. A strong business plan is the most important factor for a successful funding round. You should create a well-crafted document that outlines the startup’s vision, detailed market analysis, mission, growth strategy, and revenue model.

What do investors want to know before investing in a startup?

Investors are not interested in knowing what inspired you to start a business. They are interested in knowing your target audience, the company’s offerings, your unique value proposition, and the competitive advantage you have over others in the market. The business plan with detailed financial projections helps you show the expected return on investment. The well-made and clear business plan adds the credibility factor while acting as a roadmap for business and raising the investor’s interest.

Funding stages for startups

A business grows and expands while going through various funding stages. Every funding round depends on the amount raised and allocated by the startup. Here are the top five types of funding stages a startup needs to go through:

Pre-seed Funding:

The first funding stage covers the initial capital before the firm enters a formal seed funding round. The funding amount raised in this round is mainly from friends, family, relatives, or personal savings. There is no need to give up on equity in returns during this stage.

Seed funding: 

This is the first official funding round where investors offer a small amount of money to help the startup bring their idea to life while producing a minimum viable product. The startup is provided with money to hire staff, market research, and develop products.

Series A: 

The startup enters the series A round after it achieves a strong business model, gets a reliable user base, and reaches its target audience. The firm receives investment from venture capital firms to expand its operations and continue developing its services.

Series B: 

After the company is well-established and passes the development stage with a strong user base, it enters the series B stage. This funding round helps startups to expand their operations and development quickly and effectively.

Series C: 

After completing all the above rounds, the startup enters a series C funding round. This stage is the most expensive compared to other rounds and provides more capital for the company’s growth. The business can raise funding in this stage if it already has potential revenue of tens of millions of dollars and can grow further through acquisitions, product launches, and more. 

Funding sources depending on the startup stage

Most small businesses start their journey by collecting funds from family, friends, or bank loans. These are a few traditional options to secure funds but here are some other ways to get funding to boost your startup business. Different startups require different funding sources depending on their stage of development.

Venture Capital

Venture funding is very difficult to secure, as the business owners should prove themselves while living up to the VC firm’s high expectations. The venture capital deal comes with cash injections, strategic guidance, and strong industrial connections. The VC firms invest only in promising startups with high growth potential.

Crowdfunding

This funding method allows a business to raise a small amount of money from a large number of people who believe in the company’s potential. Crowdfunding can be effective to raise funding, it requires a brand to convey its message, strategic marketing, and marketing.

Angel Investors

Angel investors are those wealthy individuals who invest their money in a business due to emotional reasons without expecting much in return. Some HNIs provide capital in exchange for convertible debt or equity. Before agreeing, Entrepreneurs should first make sure to ask clearly how much ownership these angel investors want in the startup.

Bootstrapping

This is a self-funding method where you fund your startup through personal savings or from friends. This method is not safe, since only about 40 percent of startups get profitable but the employees might not get paid consistently. To opt for this method, you must have enough money to take risks.

Income Share Agreements

This model allows investors to provide funding in exchange for a few percentages of the company’s future revenue. While this method provides flexibility for a startup it also comes with a strict rule and time limit. The startup needs to achieve the given target in that given timeline.

Government schemes

There are several government schemes and incentives to help the companies grow. These schemes aim to support and empower entrepreneurs in running their businesses smoothly. These schemes launched by the government aim to provide startups with assistance, exemption from tax, mentorship, and financial support. These programs are launched to help startups survive in the competitive environment, scale up their operations, reach new heights, and take on more challenges.

Government programs that every Indian startup should know

Startup India Initiative

This scheme provides tax benefits to Indian entrepreneurs for five years. This program alone created around 5.5 lakh job opportunities for youths in India. This government startup scheme extended the maximum age for most eligible startups to 7 years from the date of establishment. This is one of the best government-sponsored startup India schemes for startups.

Startup India Seed Fund Scheme

Indian government launched SISFS to help startups financially. The DPIIT-recognized startups that are less than or equal to 2 years old at the time of application are eligible for this fund. The government will invest up to Rs 20 Lakhs for developing concepts and Rs 50 Lakhs in startups to scale their operations. SISFS had a total budget of Rs 945 crore to offer financial support to 3600 startups and 300 incubators. The program targets early-stage startups by offering them seed funding.

Credit Guarantee Fund Trust for Micro and Small Enterprises

This program aims to catalyze the flow of institutional credit to Micro & small enterprises. MSME and the Small Industries Development Bank of India launched this scheme together to support startups. This scheme aims to help startups by offering them loans at low interest rates without the need for any collateral. The government and SIDBI work together to offer a maximum loan of up to Rs 100 lakh. 

Multiplier Grants Scheme

The Department of Electronics and Information Technology launched this scheme to encourage collaborative research and development between industries and institutions for package development. Under the Multiplier Grants Scheme, the government grants up to Rs 2 crore for each project with a term of less than two years. The scheme focused on establishing and strengthening the linkage between institutes and industries. The institute and industry need to apply jointly to receive financial support from this scheme.

Maintain good relations and image with investors

Even after securing the funds, maintaining good and strong relations with investors is very important in the industry. Entrepreneurs should keep their investors updated on progress, new product development, challenges, and milestones achieved through various meetings and reports. Transparent communications will help you gain investor’s trust and secure future funding from them. Investors are strategic partners who can also help a startup with guidance and connections.

Conclusion :

Securing funding is one of the most important and challenging steps for startups. This requires long-term preparation, adaptability, and experience. By making a strong business plan, understanding your funding needs, and building strong relations with investors you can secure future growth and increase the chances to succeed in the competitive market. To secure funding and grow the business we need to find the right investors and programs that can contribute to the company’s long-term growth. The right guidance and strategies can help startups to succeed and turn their dream into reality.