Start-up funding simplified

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Nowadays, when we talk about funding, we tend to synonymise it with venture capital or third party investment. The case, however, is not so. Venture capital/Angel funding is only a part of the entire story. I see start-ups blindly running after VCs with their business pitch just after starting their ventures. 98.98 per cent times either they return empty handed or compromise by diluting an unwelcome percentage of their stake. As a result all they get is bitter experiences and deflated confidence. While in reality the start-up might not even require third party funding at this stage? So, where does the problem lay?

Plato once said, 'A good decision is based on knowledge and not on numbers'. True! If you do not have knowledge about your business, numbers or projections will not help. Through this article, we intend to provide the basic knowledge to start-ups about the various sources of funding available for financing their business along with their associated pros and cons.

Let us first analyse your start-up. Every venture typically goes through the following stages in its life cycle:

Prototype

A better word for this might be 'idea'. Basically this is the stage in which you start visualising your product/service.

Starting-up

This is the stage wherein your idea gets validated and you move on with setting up your entity. You register your private limited company/Limited liability partnership (LLP). The main focus here is to build your product/service. It generally consists of the first one-two years of an entity.

Warm-up stage

At this stage actually revenue starts flowing into the entity. This is when you struggle to get the right kind of team and market your products.

Expansion/Diversification

This is the stage wherein you have your set team, a ready market and steady revenue inflow to support your expenses. Now you start eying new product lines and new market capturing tactics.

Saturation

This is when your start-up is no longer a start-up. A large dedicated customer base, a well defined business model and set hierarchy. Your start-up has indeed come a long way!

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