Startup Funding : How to get funding for Startups?
"Want to fund your startup? Don't put all your eggs in one basket. It's important to explore all your options when it comes to financing. Every business has unique needs, and some startups require more funds than others. So, it's important to consider various factors when selecting a suitable funding source. Whether you choose a bank loan, a venture capitalist, or a government grant, each has its pros and cons."
Starting a business in Nepal can be an exciting but challenging endeavor, especially when it comes to financing. There are several options for startup funding, and it's essential to explore each one carefully to determine the best fit for your business. Here are some of the most common sources of startup funding in Nepal:
1. Personal sources
Personal sources for funding means using personal funds to invest in one’s business. It is broadly classified into:
This is a method of self-funding for the startup. The owner uses his/her savings and invests it in the business either by using his/her savings or by using any credit cards that he/she may have or with similar source from a co-founder.
The advantages of this method of funding are that the owner saves time and effort by not having to ask other investors. Another advantage is that the owner does not have to give up any control over his business. Self-funding also shows the level of commitment and belief that one has for their own venture.
Borrowing from our inner circle is also a way to tap one’s personal sources. Doing so might result in more flexible terms of loans than a loan, and it might be quicker and cheaper for the owner as well. But the hard part is to convince them for the idea as we have not so much open minded society where they will take youngsters seriously and refuse to listen to them or just say you should study first and then only do business.
2. Equity Financing
Equity financing is done when the owner is ready to relinquish a part of his/her ownership in exchange for the funds. You need to give up certain percentage of your companies share for the finance. The main disadvantage of this source of funding is that the owner has to give up a stake of his company. You should be very careful as to whom you give the share to as it may create problems in long run if the financer doesnt align to your vision or is impatient quickly.
3. Angel Investors
Angel investors are usually wealthy people or managers of resigned organizations who place directly in small businesses owned by others. They are often pioneers in their own field, who not only contribute their experience and contact system but also with specialized or potentially executive information.
They are usually motivated by the high growth potential that a company may have and their ability in providing mentorship and resources. They also have a sense of giving back to the entrepreneurial community, and that is why they undertake such risky investments.
The main advantage of having an angel investor is that one can get good resources and contacts. The mentorship and knowledge that is accessible can be very beneficial for the startup owner and his/her team. You will be considered lucky if you find yourself a good Angel Investor in Nepal. They also take certain percentage equity of the company for their investment.
4. Venture Capitalists
Venture capitalists are very much like angel investors, but venture-capitalists firms are a structured team of people while angel investors are only individuals.
Venture capitalist firms often look for startups that have the potential of providing high returns. These startups, however, also involve very high risk, and that is why venture capitalists also require high control in exchange for their investment
As the returns increase, so do the stakes in the company. Many entrepreneurs look for venture capitalists when the options of traditional methods of financing run out. The concept of venture capital is slowly booming in Nepal as of now.
5. Business incubator
A business incubator provides support to the startup at all stages of development. Incubators do not necessarily provide any direct startup funding, but they provide a lot of operational and logistic support.
This support is provided in the form of shared working premises, mentorship from local community experts, and even sharing of some technical and administrative resources.
An owner may use this source of funding in their initial phase of a startup when they do not have sufficient resources to have their own workspace. For example, someone may use the co-working space of an incubator to test their product before launching it in the market and after having done so, may move out of the incubator space.
These are mostly run by government agencies, universities, professional agencies, companies, etc. and in that sense, they can be really advantageous to small business owners as they provide relevant resources that can greatly help in reducing costs. The consultancy provided by experts can also be quite beneficial. Currently many compaines provide these kind of incubator services in Nepal like I-Cube, Idea Studio,NYEF, King's Incubator, Everest School of Startup, NABIC e.t.c
6. Bank Loan/ Advances
Bank advances are the most widely used source of funding for small and medium-sized organizations. They offer loans to startup owners.
In order to get the loan amount, owners have to prove to the banks the viability of their business idea and show historical records of their business and also a collateral property is a must.
An advantage of bank loans is that no equity has to be given up, but the rules of the banks are not very flexible, and interest payments have to be made regularly and on time. The rates of interest might also be high in some cases.
Recently, its proposed that upto 25 lakhs of Collateral Free Loan can be given to startup at 3-4 % interest rates but time will tell if this law is only to provide hope or is true and actual.