An Idea is conceived but, to materialise it into a successful startup you need strong determination and most importantly enough ‘Capital’ which is a very practical aspect in any business. No doubt, it is going to be very challenging for entrepreneurs at all stages of the business cycle. However, the below stated reasons shall provide an insight to why it is important to raise the capital.
Reasons to Raise Capital
To meet the daily and long term cost
Requirement of office space, equipment, inventory and licenses along with product development are the practical aspects that will need funding.
To scale the business
Being ahead of time is always appreciated in any field. If you are the first one in the marketplace, you will be the pathbreaker. To scale up the business i.e., to increase the product visibility and to attract potential clients/consumers before your competitors in the market, would require capital. Hence, funding from venture capital will be the most relevant step.
To build credibility
A startup with a revolutionary business idea and strong business plan will attract investments from venture capitalists. The big and new investments in the potential idea shall build credibility and shall enhance the image of your start-up.
Expert advice and extended network
Scope of going faulty is less when you have experts to advise on the business strategies. And, with an extended network of experienced people, you have an option to consult them anytime along with the funding you receive. Think about this!
To identify business risks and decision making
Timely identification of business risks can save a lot of time, effort and money. Strategic and expert guidance shall help to identify the risks in the business and provide a scope to make decisions at an early stage.
When to Raise Capital?
The best time to raise capital is when you are clear in your thoughts – you know what you need to do, how much money you need to get to a milestone, what is the business plan you will follow and how the return on the investment (ROI) will be calculated.
Being ahead of time is always appreciated in any field. If you are the first one in the marketplace, you will be the Pathbreaker.
Ways to Raise Capital
Bootstrapping, angel investments, raising funds from family and friends or traditional bank loan processes shall help to launch the business. However, for mentorship and further funding, business incubators and accelerators along with the venture capitalists play a pivotal role in the growth of the startup. One may use the crowdfunding platform to increase the visibility of the product and to attract additional investors for the next round of funding.
What’s in it for me?
Depending on the stage of your startup i.e. early/late stage, the ways of the investment may vary. But, raising capital in any scenario is a must.
As an entrepreneur, to launch a startup with, for example, a revolutionary consumer tech product and to get to a milestone, you must ask yourself – if you need funds? If yes, when, why and how to raise the capital? Simultaneously, you must think about the ways to generate the ROI. Raising capital from investment firms means lump sum payment with a comfortable repayment plan. You may not need to pay monthly instalments to pay off the investment amount received. Hence, you may use the capital for building the startup but it can turn into a huge liability in absence of clarity of thought on business plan and ROI.