How to raise funds for your Business

Introduction

In this video, Professor Bada Business, Mr. Sanjay Kathuria, explains what a startup is and how it can raise funds.

Key Note #1: What is a Startup?

The startup has two definitions – Standard definition and the definition according to the Indian government.

Standard Definition of Startup

• When an idea comes in a person’s mind whether he is a businessman, student, or wantrepreneur that he can provide a solution to a problem.
• The startup is the “birth child “of an idea. The idea is created to solve some problems. There are many startups in India.

Definition of Startup According to Indian Government

A company is said to be a startup if it fulfills the following conditions:

• Private Limited company, Registered partnership, LLP incorporated or registered in India not prior to 5 years. For example, if it is 2020, the company incorporated before 2016 cannot be considered as a startup. After 2016, any Private Limited, registered partnership, or LLP can be given the status of a startup.
• The annual turnover of the previous year should not exceed 25 crores.
• Businesses should not be formed out of the split.

In most of the startups, they have some technology or intellectual property. For example, Bada Business Pvt. Ltd. is a startup because of its:

• Mobile Application, which is a technology
• Content, which is the Intellectual property

Startup culture is very popular in foreign countries.

You should understand the landscape of startups and how they work in it.

• In the US, there are more than 1 Lakh startups.

• In India, the number of startups is growing. Today, there are more than 50,000 startups in India. India has witnessed a massive growth in startups. People are motivated to become an entrepreneur. Make in India has progressed a lot. Many people have taken initiatives to establish their own startups.

Successful Startups in India

Urban Company (The Chairman of this company, Mr. Abhiraj Sigh Bahl, is the Professor of Bada Business), Zomato, Grofers, First Cry, OLA, OYO Rooms, We Travel Solo, Snapdeal, Flipkart, and Food Panda are the startups of India. They have done the following things:

• They have identified some problems.
• They presented a solution to this problem.

Key Note #2: Stages of a Startup

Following are the stages of a startup:

1. Discovery: It is a moment at which you identify the problem and its solution.

2. Validation: You have to validate your idea in the market. For validation, you develop a Minimum Viable Product (MVP) to check whether your product or service is being accepted in the market or not.

3. Efficiency: At this stage, you have to build efficiency in your business.

• Initially, when you make the first product, you don’t think about its cost in the market because you want to test the product in the market.
• But, when you start making too many products and you get customers, then you have to become efficient.
• If you are not efficient, your costing will be high that leads to low profitability.

4. Scaling: After making your business efficient, next you have to scale your business.

• For example, you have to increase your production & sale from 100 units to 10000 units.
• You have to scale according to 10000 units.
• You have to increase your manpower, technology, service, marketing expenses, etc.
• You have to scale your business and take it upwards.

5. Maintenance:  After scaling, you have to maintain business.

• Maintain means as you have grown big, now, you should maintain it.
• You should not try to scale more, otherwise, you will fall.

6. Sale: Now after maintain, you can scale your business some more, run it as usual, or sell it.

For example, Flipkart used all these stages.

1. It was discovered in 2002.
2. It was validated and accepted by the market.
3. They build efficiency.
4. They massively scaled their business.
5. They maintained.
6. Finally, they sell their business to Walmart.

Thus, they meet the entire cycle.

So, these are the 6 big stages that impact a startup.

After understanding the concept of a startup, the landscape of startups in India, how the startup is recognised as per the government rules & regulations, now, we will answer the next four questions.

The entire course revolves around these four questions and their brief is given below.

Key Note #3: Why to raise funds?

Many people establish a startup only to raise funds.

For example:

Some people sit with friends for drinks & dinner. They discuss things such as Flipkart have sold its company for 21 billion dollars, Urban Clap has raised its valuation to 1 billion dollars, etc. What are they doing?

They don’t think that they have to solve a problem in business. They only want to start a business to raise funds.

You should always do business for solving a problem and not for raising funds.

In business, when you solve a problem, you need support and funds.

You need funds to build manpower, product, technology, marketing & sales because customers won’t pay you on day one. He will pay you slowly when he starts trusting you.

So, you need funds to set up, run, and grow your organisation.

Therefore, you should keep in mind the following points:

• You should not build a company only to raise funds and run away.
• You should create value.
• You should raise funds to run your business.

Key Note #4: How to raise funds?

You can raise funds from the following sources:

1. Friends& family: You can raise funds through friends & family. For example, you can tell your family and friends about your idea and you need Rs. 2 Lakh for it. You have Rs. 50,000 and ask your family and friends to contribute the rest of the amount. In return, you can give them equity or share in your company or return their money after sometime.
2. Institutions: You can raise funds from institutions who provide funds in the market such as:

• SIDBI
• IFCI
• Sequoia Capital
• SL Capital Partners

3. Private Equity Investors: You can raise funds from private equity investors. You can take funds from high net worth individuals. There are many people who have money, but they don’t invest through platforms. They can directly invest in your company.
4. Accelerators: You can approach accelerators & incubators. They have a complete ecosystem, which means they have Digital marketing, HR &Technology people. They will evaluate your idea and provide funds as well as complete support.  They have cohorts, which means they evaluate 15-20 businesses and make a group of businesses they like. After making groups, they mentor and invest in them. They grow and give support to these companies.

Key Note #5: Where to raise funds?

1. Events:

• You can go to events. These events are a good place for networking such as FICCI, CII & NASSCOM.
• There are many events of Angel networks such as Delhi Angel Network, Bombay Angel Network, etc.
• You can visit these events and network with fund heads, their juniors or with some other person who might help you.
• You should maintain relations with them and send information to them.
• You should be persistent with your investor.

       For example:

• Suppose your investor says, “Call me tomorrow.”
• You don’t have to say, “OK Sir, I’ll call you tomorrow.”
• You have to ask, “Sir, please tell me the right time to call.”
• You have to ask, “Sir, can you give me 5 minutes please?”
• You have to hold the hand of your investor, only then he will listen to you. He will also like this.
• If he asks you to come tomorrow and you wait for tomorrow, remember that “Tomorrow never comes.”

2. Pitch Sessions: Pitch session is a forum where investors collect and ask about your idea. If they like your idea, they will invest. For example, you should watch a programme named Shark Tank and see how investors evaluate businesses.
3. Colleges: Today, every college including IIT, IIM, big and small college have developed their entrepreneurship cells. You can approach these cells and tell them that:

• You want to become an entrepreneur.
• You want to raise funds.
• You want to pitch to the investors.

They may connect you with good investors and support as well.

Key Note #6: When to raise funds?

There is no specific time for fundraising. You don’t need to consult an astrologer about the right time for fundraising. You should consider the following points while raising funds:

• At which stage your company is?
• How will you utilise these funds?
• What is your growth plan?

You need to answer the above questions only then you can decide when you can raise funds.

Always keep in mind, do not raise funds on the day you need them instead when you think that you will need funds in the next 18-20 months. This is because there is a cycle of fundraising and it takes some time.

The four questions where, why, when & how have been answered in this video briefly but the complete course revolves around these four questions.

Credit goes to Bada Business