which are cohorts , government grants , accelerator programs that a founder can access . Founders also can get their products validated by the market by hosting preorders or crowdfunding campaigns . This is may not work for all businesses at this stage since the business has not earned any credibility yet .
• At the 1 – 10 Stage , the business has earned some customers , repeat purchases and word-of-mouth is generating organic sales . The business is reaching its critical mass of customer base but if it needs to scale inventory , the business would require funds , because inventory requires paying vendors upfront . The higher the inventory , the higher the costs to be paid in advance . Inventory shouldn ’ t become the roadblock for the business at this stage . Getting funds at this stage is relatively easy since the business has proof and also a track record , hence the business has a good chance of getting an angel investor onboard . Crowdfunding and Pre-orders are the best way to raise funds at this stage , since these options don ’ t require the business to dilute their equity / company or pay interests to the bank .
• At the 10-100 Stage , the business is now solid , streamlined and self-sustained . To fuel the rapid growth or to grow exponentially , the business has to take bold steps , like mergers and acquisitions or raise large sums of money by going public , which helps in expanding the business and have a deep rooted model that ’ ll last the test of time . At this stage , the business will need financial support from investors to grab or increase their market share . Investments in innovation , research and development , creating intellectual property , etc .
Here ' s a closer look at some of the sources of funding :
• Government grants - Many state governments are offering fiscal incentives including up to 30 % in capital investment subsidy , which is a strong incentive for toy manufacturers . In addition to these , there is an interest subsidy on term loans , power tariff subsidy , electric duty exemption , reimbursement of stamp duty and registration charges . Other subsidies by state governments including rental subsidies , wage subsidies and skill development incentives that will likely benefit the industry . The MSME is required to have registered and possess an Udyam ( previously Udyog ) Certificate .
• Bank Loans – In the initial days , founders can apply for personal loans to fund their business , it ’ s difficult to get business loans in the early days . On an average , a business needs to be active and operating for at least 3 years to gain any credibility with the bank to get loans .
The Pros
No dilution of equity , helps with the CIBIL score for the business and sometimes it ’ s quick . Interest rate can be capped at a reasonable rate .
The Cons
The instalments start immediately whether the business is making money or not . A long-term commitment that can last few years .
• Angel Investment – If a business model is lucrative for the investors , this itself means that the business model is validated to some extent . It ’ s never easy to get investment of any kind . But if a business requires a lot of funds initially , this can be an advantage , a huge boost and accelerated growth can be achieved with investment coming in . Angel Investors are aware that the business can fail too , and are willing to take that risk . Angel investment can be in the form of 3 kinds – Equity , convertible debt / notes or share holder loans ( provided the business is a private limited ). This also means that there are a lot of strings attached , the business is expected to take-off and be successful , which can be stressful for the founder .
• Crowdfunding – Crowdfunding is the best form of sourcing funds ! The product is critically analysed by the people who will back the product and helps in refining the product even before the product goes into production . This is a big deal . This means that the business has already gained customers and funds from the backers to bring the product to reality . Most of the times , if the product is a hero , backers extend their support by increasing the amount they want to contribute and also sell in new markets . All of these advantages without spending a penny . In India , Crowdfunding is not available but there are legal ways to have a setup to use the world ’ s most popular crowdfunding platform – Kickstarter . com
The Pros
The product can be refined with the help of the community ’ s feedback , the backers become the initial customer base which can help the business attain traction , the first production run is fully funded if it ’ s successful . A good track record of fulfilling on time can do wonders in the future crowdfunding campaigns .
Kids India E-Magazine - June 2022 | Page 9