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2 mins Read | 2 Years Ago

Funding types for a start-up

Funding types for a start-up

We are aware that a start-up needs money to stay afloat, expand its business, and generate income. However, did you know that there are numerous ways of obtaining capital for your business, including different types of funding for your business? Regardless of whether a company is in the development phase or is thriving, it needs basic resources. Certain fixed and variable expenditures must be incurred, for the company to function. To run a functionally operational business, a large sum of capital is required on expenses such as sourcing raw materials, other resources, and machinery or equipment. Also, adequate funds or capital is required to procure all the above mentioned resources, develop websites or applications, acquire office space and other miscellaneous costs for hiring a team of experts from different fields, like marketing, product development, and sales. Let us find out how to use these funds:

How are funds used?

Companies or Corporations incur both short-term and long-term costs and expenses. Wages, supplies, and inventory are all short-term expenses that are needed to sustain manufacturing, production or service generation, sales, operations & accounts, and most importantly, promotion and marketing. Long-term expenses typically comprise of non-cash costs, such as the facility or plant and its equipment, where the production of goods is accomplished. These assets depreciate over time and need to be upgraded regularly.

Types of Funding:

Depending upon the size and future goals of a business, a company adopts ways to acquire capital in order to start functioning and gradually expand. Let’s discuss the different approaches:

Series Funding:

Depending upon the size and future goals of a business, a company adopts ways to acquire capital in order to start functioning and gradually expand. Let’s discuss the different approaches:

  • Pre-seed Funding: This type of capital assists a business to create its foundation and initial functionality. This capital is usually considered as a round of funding because it helps kick-off the start-up

  • Seed Funding: "Seed Funding" is the initial step of a start-up grant. It is the fundamental capital required to start and operate a firm. It is usually not a very big amount and is given in exchange for part ownership in a company

  • Series A Funding: It is defined as the investment in a privately owned business entity that has demonstrated success in developing its business strategy with the ability to grow and generate revenue

  • Series B Funding: The start-up funding stage B is the business expansion phase, which includes not only the extension of the product or service, but also the expansion of the company's client base, workers and management team. The Funding Stage B enables new firms to grow with the goal of satisfying the diverse demands of their consumers, while also competing in competitive marketplaces

  • Series C Funding: New firms must already be on the development trajectory by the time they reach stage C. These new businesses are searching for further funding to assist them to develop new offerings and expand into new areas. They may even consider purchasing other underperforming businesses.

Crowdfunding: The utilisation of modest sums of funds secured from a large number of people to support a new business initiative is known as ‘Crowdfunding’. Investors either contribute money philanthropically or receive benefits, such as high-value stocks of the firm, depending on the form of crowdsourcing.

Business Loans: A loan can be secured from a bank, an investor, or FFF (Flexible Financing Facility). Personal guarantees are usually not required for loans from investors and support groups. In practice, a bank loan usually necessitates some type of collateral. In general, you should exercise extreme caution before obtaining a loan for your business or pledging your home as collateral - these decisions might result in a great deal of pain, if the firm goes bankrupt.

Bootstrapping: Bootstrapping is the process of setting up a business solely on financial flow. This is when a firm attempts to offer a product or service with little initial capital and expand the company solely on the proceeds from the sale of the product or service. This strategy is most commonly used by businesses that develop cutting-edge software or other cost-effective technologies.

Venture Capital: It is a type of private ownership along with financing provided by investors to start-ups and small enterprises, with the potential for long-term expansion. Well-heeled investors, investment banks, and other financial institutions are the most common sources of Venture Capital.

Angel Investors: Angel investors are those who provide capital to potential start-ups in exchange for a piece of the company, generally in the form of equity or royalties. A normal investor is either an individual or a company that invests in small businesses, using money from investment firms, huge organisations, and pension funds. An authorised investor who invests in small enterprises with their own money is known as an Angel Investor.

Why choose ICICI Bank’s iStartup?

Since ICICI Bank understands the challenges that an entrepreneur experiences when starting a business, we have decided to lend you a helping hand. ICICI Bank has launched iStartup 2.0, a comprehensive package of services for the young or inexperienced entrepreneurs to meet all of their investment and spending requirements, in order to develop a fully viable start-up, using industry specific solutions. Whether you are a new start-up or in the growth stage, iStartup 2.0 is the best option for small enterprises. So, what do you have to lose? Click here and apply now, for your iStartup 2.0 Account.

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