Securing the needed amount of financing is one of the most important functions for starting a business. It highlights what sources of financing exists at various stages of venture development. So, depending on the industry and aspirations of the entrepreneur(s) has a need to attract money to fully commercialize their concepts. Thus they must find investors – such as their friends and family, a bank (or) an angel investors (or) a venture capitalist funds (or) through a public stock offering (or) some other source of financing.
When dealing with most classic sources of funding, entrepreneurs face numerous challenges like disagreeing to the business and financial plans, requests for large equity stakes, tight control and managerial influence and limited understanding of the characteristic of growth process that start-ups experience.At the initial stage , Bootstrapping is an effective way of start up financing but in order to stabilize the start up entrepreneurs should follow various fund raising methods to raise money.
MOST FORMAL SOURCES OF FUNDING :
SEED CAPITAL FINANCING: Seed capital financing is the earliest source of investment for a startup. The sources of this funding will from your family, friends, crowd funding or from your savings. Usually these amounts in this type of investing are not too high and are typically repaid through the loan (with or even without interest) or are invested in exchange for a small equity share in the company.
ANGEL INVESTOR FUNDING: When your startup needs to grow and it requires funds towards product development, marketing (or) just to expand your team to keep up the momentum then the angel investors comes into the picture as a solution for raising money.
VENTURE CAPITAL FINANCING: VC funding can provide resourcing for scaling the business to new business channels, customer segments or to increase marketing efforts for additional customer acquisition. At this stage of financing the startup either may run with profits or may get out of negative cash flows.
BRIDGE LOANS: At this stage of financing your startup may be with constant growth and looking to scale significantly with a commercially available product. The funds during this stage will be raised due to merge and acquisitions. At this stage the investors want to see the clear route map towards profits of the firm.
IPO( INITIAL PUBLIC OFFER): IPO is not the end goal for all the startup’s. However, in order to expand the firm further for raising money. At this stage the firm will be listed out in the stock market for going into public as an option of making money.
EQUITY FINANCING: In equity financing, from an entrepreneur perspective the cost of equity is considered as the loss of control over the venture as the founders must share the ownership of business now.
DEBT FINANCING: At this stage the version of an entrepreneur will be as, the cost of debt financing is the interest that they pay for the use of money that they barrowed, where as the perception from the investor side is obtaining the interest as a reward in addition to money that they have lend to an entrepreneur or borrower.
Finally, Capital raising challenge really begins once the MVP(Minimum Viable Product) phase is reached. This is the point where capital is required for product development , sales and market ,patent preparation etc… So, Every start up founder has a need to understand that MVP’s are not only for raising money but also helps to get data about potential customer of the start up. So, the founders of start up can raise money with a prototype GTM(Go-To-Market Strategy) plan.
Advertising is also one of the best way for start ups to make money because advertising increases the name of the firm within your industry and helps to attract partners to expand business which in turn increases profitability. So, these are some money making or financing methods which are followed by most of the firms to make money efficiently .