Start-up Finance means the fund required to turn an innovative idea into a profitable business. Due to its lack of similar past business history and just being starting up, financial institutions doesn’t show much interest in lending money.
Popular methods for Start-up Finance
- Bootstrapping: A bootstrapped business is one in which the promoters invest their own money to build the business. The challenge is to survive through limited resources, but the promoters will have the freedom to experiment with their product and business as they’ll have the full control.
- Angel Investors: Angel Investors are individuals or a group of individuals who invest in start-ups and their early stage. These are usually one-time investment and from personal savings of investors. Investing at early stage comes with extremely high risk and thus professional angel investors look for opportunities for a defined exit strategy, acquisition or Initial Public Offering (IPO).
- Venture Capital Fund: Venture Capital Fund is an investment vehicle that manages funds of investors seeking to invest in start-up and other business with exponential growth potential. These funds are professional managed by experienced and knowledgeable portfolio managers.
Unpopular methods of Start-up Finance
- Personal Financing: It’s really important at early stage, as investors usually don’t put money into a deal until the promoters have not contributed from their personal sources.
- Peer to Peer Lending: Group of people come together and lend each other. Many small groups of business pool money and support each other.
- Crowdfunding: Crowdfunding is the use of small amounts of capital from large number of individuals to finance a new initiative.
- Microloans: These are small loans that are given by individuals at a lower interest to a new business venture.
- Vendor Financing: Vendor financing is where the company lends money to its customer so that they can buy products from company itself. The company charges an interest rate on it.
- Purchase Order Financing: Whenever a large order comes up, promoters can contact Purchase Order Financing Companies. These companies directly pay the required sum to suppliers. Theses are beneficial to start-ups who gets an large order at their initial business stage itself.