Growth of Newer Sources of Funding

Growth of New sources of Funding

Karthik S

PGP 2105-17

Indian Institute of Management Raipur

Introduction:

Over the last few years, there has been burgeoning of start-up companies. People are coming up with more and more innovative and unconventional ideas. These ideas are not only limited to technology. They can be anything upon which a business model can be built. This has made a large number of audacious people to pitch their ideas forward and become part of the start-up ecosystem. Since a majority of start-ups are being started by people with a not-so-big financial background, funding for these start-ups becomes an important aspect. That venture capitals are the major source of funding for start-ups is widely known. In this article, we discuss about their viability of the newer sources of funding that have become prevalent of late.

What is a start-up?

For starters, a start-up is an entrepreneurship or a new business such as a company or a temporary organisation that has been designed to search for a scalable business model. These start-ups mostly rely on innovation and have been designed to develop at a fast pace. Start-ups are generally designed keeping in mind the target markets, which they try to tap upon. Start-up companies come in all sizes.

The start-ups are mostly developed by budding entrepreneurs who want to make a name for themselves. Of course, there are people who do it for the sheer pleasure of enjoying what they do best. To encourage the intellect and initiatives of these people, business incubators are being set-up these days which provide office space and training to the start-ups.

Funding of start-ups:

Even though a start-up may have high aspirations, its success is drastically dependent upon the funding it gets. Any business model is only as good as the funding it gets. There is money out there everywhere but one must know where to find it. Raising funds is the single most important task in getting the start-ups off to a good start. There had been instances of good ideas not achieving their glory due to the lack of proper funding. News has emerged that almost nine out of ten start-ups are not able to get a VC firm on-board. It is really depressing to see mind-boggling ideas go down the drain for nothing.

In most cases, start-ups are funded by venture capitalists. Venture capital is a company that is on the lookout for proven and established start-ups. Venture capitals are professional investors who offer a large sum of money. Since venture capitals pump in the money invested by others, there is much more risk involved in this type of investment which forces them to be circumspect before taking a call. So, getting a VC on board a start-up is much complicated than what it looks from the outside. Fortunately, it doesn’t end there. With the humongous attention that the start-up industry is receiving of late, there are other sources by which one could get funding for start-ups. People have moved on from being reliant only on VCs to fund their start-ups. We will now take a look on the newer sources of funding that have emerged.