Startups

How to cover up the funding gap for your startup- self finance or get investors?

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Usually when people talk about their startups and new business ventures, the first thing mention is what their idea is, and the first question they get in return is ‘where is the investment coming from?’ Although the beginning of any such venture is through FFF  (Founder,Family and Friends), founder’s own savings or money loaned from family and friends. And if the idea does work and requires more investment, what to do next? Pitch VCs and Angels, who aren’t that easy to convince or keep selling the product to the customers, hoping it will self fund soon? Not an easy call to make.

An alternative option to these is to approach an accelerator/incubator who will offer a substantial amount, but that might not keep one going for long. The key lies in being realistic. Although the startup team might find their idea to be unique and fruitful, it could get hard to convince rest of the people the same. Looking at the number of startup businesses coming up or getting funded each week, on one side it could be said there is still a market for fresh ideas, and on the other it could be said that the investors could be reaching a point of saturation, and what they need is an idea that stands out. And in case if a startup isn’t able to reel in such investors, the other road of financing the company with revenues is a viable option.

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Think of a real-life situation where a person is looking to start a handicraft business. With an initial investment he could get the raw materials and a few manual workers. Assuming that the person already has a source to sell the product, he could start earning revenue with the products that are being made by his company. The business may not be profitable just yet, because unlike the popular belief profit isn’t just the difference between the investment and the revenue. The income generated would be cycled back to run the company. And gradually it’ll become self sufficient.

The same principle could be applied to any other startup. The long term goal is anyway to keep the clients/customers coming, so if the idea is profitable, fund-raising could be put off as long as possible. Also, fund-raising and chasing capitalists require time and energy, a company which is still in its nascent stage can’t exactly afford for its founders to give it only a part of their attention and not focus on its development. However it’s true that a decent funding amount would give a good boost to the growth of the startup, but if the process of acquiring it is at the cost of product development, it may not be worth it.

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Hence the idea is to build a sustainable model, where the growth of the business and influx of customers go hand in hand in order to make the initial idea profitable. Attracting customers and earning profits would eventually lead to gaining the attention of the investors, and thereby completing the initiation cycle, after which the company could choose to continue with their plan or go with the different stages of funding that exist.

In practical situations not everyone could get their startup funded by angels or VCs, and hence many already follow this plan of getting their idea self-started. But which path will be best for your startup is solely for you to choose, based on reality that your are living in.

To contact the author, write to sugandh.dhawan@wirefootindia.com

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