BY ROBIN GHOSH
( FORMER CHIEF ECONOMIST, BENGAL CHAMBER OF COMMERCE AND INDUSTRY)
KOLKATA, 29 AUGUST 2022
How do you finance your startup? Answers to this question are very important. Financial planning is the key to your success. Since, there are many sources of funds, you have to have some skill in designing the fund planning for your project.
Like building a castle with Lego parts, you need to have a vision of the castle and at the same time, some sense of structure building . Similarly, in creating a financial plan for your startup, you may have to combine many sources of funds having different term sheets, conditions and different impacts.
Let us quickly go through and understand what are the various sources of funds. Generally speaking they are:
1. Personal Investment.
Your own cash or money you have arranged against collateral on your assets. Proves to the investors that you are committed and ready to take risks.
2. Money from family and friend circuits
Money loaned to you by your wife, parents, family and friends. Money to be paid back later.
3 . Venture capital
Usually, this capital is generally available for technology intensive companies. These funds involve giving up some ownership or equity.
4. Angel Investors
A class of investors who are rich and have experience in managing business. They like to invest in early stages of business. In exchange for investment they often demand a seat in the Board of Directors.
5 . Business Accelerators / Business Incubators
Provide comprehensive support including finance at various stages from creating prototypes to final products.
6 .Government Grants and Subsidies
Government Grants and Subsidies are available from Central and State Governments. Availability of funds from this source is subject to strict scrutiny and evaluation.
7. Bank Loans
Most commonly used source of funding for MSME companies. Each Bank has its own criteria for providing Term Loan and Working Capital.
While designing a finance plan for your startup, you have to bear in mind that a diversified portfolio of finance is better as compared to a single portfolio.