Running a startup is a dream for many millennials in this era of globalization, where there is no dearth of opportunities and plenty of new problems to solve as a business. We’ve already been witnessing the startup industry boom in India over the past few years, and with many startups spurting everywhere. This isn’t limited to metropolitan cities but extends to tier two towns as well.
But launching a startup is no cake walk. The first problem that every startup typically faces is a way to source capital and investment(s). Most entrepreneurs willing to launch their own startup are unlikely to get loans from banks and financial institutions without offering any collateral. To seek funding from the Venture Capitalists (VCs) before having a prototype or working product, is as good as finding a needle from a heap of grass, due to a plethora of competitors queueing and struggling to compete for the same funds. Ultimately, you may need to start off by invest your own capital. Here’s how you can do just that.
A full time job
One of the reasons to start up is to be your own boss. But that requires you to slog hard to generate some investment capital, which isn’t very easy to come by, at least during the initial stages. Nothing better than a full-time job to earn that much needed cash. You get to earn a consistent amount of income and can try to save depending on your capacity. You also get time to plan for your startup after work hours while doing a full-time job. This is the most popularly taken path, by which many entrepreneurs tend to save money and build the initial capital for their startups.
Investing the savings
You may regularly earn salary from the full-time job and save it for the startup, but just saving it is never enough. Often, the rate of savings or term deposit interest would fail to match the rate of inflation, leading to erosion in the value of your savings. It is important to invest your salary in a better and dynamic investment option than traditional investments. Mutual funds for example, can provide that critical boost and increase your capital for your future startup, by generating significantly higher returns on your savings than say, term deposits. For example, the Nifty ETF of Birla Sun Life Mutual Fund delivered a return of 11.5% per annum on an average for the last 3 years, which is much higher than the average term deposit rates of 7-8%. In the end, you might end up with a corpus more than enough to form your startup.
Participating in contests
In the corporate world, there are various open contests held on a regular basis especially in the IT industry which rewards large sums of money to their winners. Contests like hackathons, Microsoft Bizspark, NASSCOM’s 1000 startups heavily reward winners. Needless to mention that you need to stand out from the rest of the crowd to get through the competition at these contests. Whether it’s your product or your business plan, it has to be different and innovative. Startup dreamers can always (and should) participate in these events. Winning the prize money might significantly increase the savings for your future startup.
Acquiring pre-sales or pre-orders
Many businesses these days collect cash for ordering products in advance from the customers. The advance cash collected helps a lot in managing the cash flows of the company. For example, smartphone giants like Apple and Samsung generate hype for their products through excellent marketing strategies and start pre-orders and collect cash in advance. Similarly, you can create a prototype of your product and with effective marketing tactics, gain pre-orders and sales from clients and customers. This would give your startup a headstart in terms of managing the initial working capital of the company. Working capital being one of the fundamental factors in the day to day business, would tremendously strengthen the operations of your startup.
Bootstrapping with the help of family & friends
Investing your own savings and bootstrapping the startup is a great way to get the initial capital. But you can bootstrap your startup by taking financial help from your family members and perhaps friends as well. Sure, you’d repay them later when the cash inflows of your startup stabilize and when you’re able to manage the repayments along with normal lending rates as well.
A startup cannot rely on its own capital alone. External funding would eventually have to be obtained after a certain point in time, unless perhaps if your model is high-margin one. By saving money through strategies like these, you stand a good chance to form the capital base for your startup’s success. Subsequently, banks, financial institutions, external lenders and venture capitalists could be far more interested to lend or invest in a startup that is operating with its own investment.